“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
We’re doing a three-part series with some of our fan favorites over the last three seasons on the LP perspective of succession-planning and VC firm-building.
Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem.
Ben Choi manages over $3B investments with many of the world’s premier venture capital firms as well as directly in early stage startups. He brings to Next Legacy a distinguished track record spanning over two decades founding and investing in early-stage technology businesses.
Jaclyn Freeman Hester is a Partner at Foundry. Jaclyn helped launch Foundry’s partner fund strategy, building the portfolio to nearly 50 managers. Bringing her unique GP + LP perspective, Jaclyn has become a go-to sounding board for emerging VCs.
[00:00] Intro [02:03] The job that goes unseen by others at a VC firm [09:01] The psychology of curiosity [11:12] The story of Charlie Munger and Robert Cialdini [14:17] Lisa’s perspective on the intangibles of firm-building [17:41] Heidi Roizen and why glassblowing builds relationships [21:09] The people you surround yourself with [23:06] Jaclyn’s perspective on the intangibles [26:23] Examples of how to communicate strategy drift [27:34] Ben’s perspective on the intangibles [33:19] The metric many LPs don’t use but should use to evaluate GPs [36:16] Thank you to Alchemist Accelerator for sponsoring! [37:17] If you enjoyed Part 1, and want to see Part 2 and 3 sooner, leave a like or a comment!
“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
“At the end of the day, the job is to take a pile of money from your LPs and give them a bigger pile. And giving them back a really big pile is the legacy thing. […] And consistently insane returns are hard. That, to me, are the firms that go down in history.” – Jaclyn Freeman Hester
“In venture, LPs are looking for GPs with loaded dice.” – Ben Choi
Felipe Valencia is one of the co-founders of Veronorte, a venture capital investment firm based out of Colombia. In the first decade, Veronorte focused on managing Corporate Venture Programs for some of the largest Corporations in Latam.
These days, they’re diving into a Fund of Funds investment strategy in the Venture Capital space. For the last 12 years, Veronorte has invested in over 25 startups across the U.S., India, Europe, Mexico, and Colombia, and in more than 12 Venture Capital funds, primarily in the U.S.
With over 20 years of experience under his belt, Felipe has dabbled in various fields like robotics, the internet, international trade, and infrastructure project management.
Felipe graduated summa cum laude with a Mechanical Engineering degree from EAFIT University. He also holds a Master’s in Web Communication from the European Institute of Design in Rome and an MBA from the University of Chicago, where he focused on entrepreneurship and finance.
Felipe’s journey has taken him all over the world: He worked for AVG – Robotics in Los Angeles, did research and development in Mechatronics at Siemens in Germany, and was the Commercial and Strategic Director of Indexcol in Colombia. He also served as the Commercial Attaché at the Colombian Embassy in China and led the Proexport office there. Most recently, he was involved in business development at Pierson Capital in Beijing and managed infrastructure projects in Mexico.
[00:00] Intro [02:54] Felipe’s teenage years under a life of terror [10:01] How Medellin has changed over the years [13:12] Tales from Felipe’s travels across 10 cities in 4 continents [17:53] How did Felipe made his foray into VC? [22:46] How did Felipe meet his co-founding partner Camilo? [26:31] How Felipe pitched a VC fund without a track record [39:16] How did Felipe and Camilo think about compensation in Fund I? [47:40] How did Veronorte transition from a VC fund to a fund of funds? [55:14] The Monte Carlo simulation of fund of funds strategies [1:03:04] How much better does a venture fund need to do than public markets? [1:05:46] How did Veronorte get into top tier established funds? [1:12:00] What coffee brand did Felipe bring on his visits to the US? [1:13:38] How did Veronorte close Latam family offices in their fund of funds? [1:17:04] How does Veronorte communicate with their LPs? [1:23:58] The difference between an emerging firm and a frontier firm [1:28:55] Portfolio construction at Veronorte [1:34:50] What podcasts does Felipe listen to? [1:38:19] Felipe’s advice for the wanderlust [1:43:39] Thank you to Alchemist Accelerator for sponsoring! [1:44:39] If you enjoyed this episode, albeit longer, please do leave a like and share it with one friend who’d enjoy this episode!
“Diversification is a good way to control dispersion of returns.” – Felipe Valencia
“Every time they go to a meeting, they go with a present.” – Felipe Valencia, on building relationships
“This is an access class, not an asset class. And to show access, you need to bring these established firms. It’s not that we will invest in any shiny name, and we have passed on amazing firms that have an amazing brand because they don’t fit in our strategy.” – Felipe Valencia
In 1968, NASA tasked the late George Land to create a test that would help NASA hire more creative geniuses. Does genius and creativity come from nature or nurture? As such his job was to create a test so simple that even children could take it. And he found that for children ages 4-5, out of 1,600 children, 98% of them qualified to be a genius. Divergent thinkers. Then, he waited five years to assess these same children. To which he found, only 30% qualified. Then another five years later, only 12% of the same children were what he counted to be geniuses.
It begged the question: What percent of adults are geniuses?
Of course, the lesson from all of this is the fallacy of modern-day education. And the same is true for the adult world between convergent thinkers and divergent thinkers. I believe in the world of venture at least, we have terminology that’s little less palatable (at least for me, although on occasion I’m guilty of using them myself): insiders and outsiders.
My friend Anne sent me this piece by Auren Hoffman recently on insiders and outsiders. An incredibly well-written piece, and quite thought-provoking. I’ve largely thought about how outsiders can become insiders, but silly me, less about the value of staying an outsider or an insider aiming to become an outsider. Moreover, that to be successful as an insider, there’s actually a rather predictable path to become one. Or at least to help your children become one. Go to Harvard. Play insider sports, like gold, or horse-riding, or sailing. And son. But in Auren’s words, to be successful as an outsider, well, “being [an outsider] is MUCH higher beta. They could end up changing the world for the better. They also could blow it up. Or just never be accepted and live less happy.”
And while I may not agree with everything that Auren proposes, a lot of it makes sense. In fact, 11 words definitely caught my eye. “Outsiders take things from insiders. Insiders inherit things from other insiders.” And as such, insiders play the status quo; outsiders change the status quo.
It’s interesting. Every generation of VC, there’s a changing of the guard. Many of the new regime are outsiders. People who think different. People who exhibit a level of creativity that is uncommon in VCs. Either in the form of business models or how they provide value. How they build brand. Or simply how their brain works. People that in bringing a fresh perspective were able to find the next great companies unlike any other.
Interestingly enough, in my buddy and Superclusters guestJaap’s recent study of 2,092 North American and European VC funds, he found that these are the folks who are more likely to hit fundraise targets than any other GP persona. Aka 45% success rate. And perform highest at 2.4X net TVPI, but only average on DPI and IRR.
My guess here is that these outsiders, in being artisanal about their craft and — well, at least with respect to the VC industry at large, divergent thinkers — find their tribe rather quickly because LPs quick self-select themselves in or out of a relationship with them. They’re the round pegs in the square holes, to borrow a Steve Jobs moniker. So when most others look square, the few round holes instantly identify with these round pegs. And more often than not, they’re new to the asset management game, so have lower fund targets and a more precise strategy. Downside to that is they’re still learning the ropes of exit strategies and fund management. Which also explains the high volatility in returns.
And while there’s much higher beta in being an outsider, there’s plenty of research to suggest that there is also greater alpha. But it’s going to be unfair. The deck is rigged against you. There’s a great Marcus Aurelius line. “Mental toughness is knowing life isn’t fair and still playing to win.”
The outsiders who win exhibit exactly that mental fortitude against stacked odds. Besides, there’s joy in doing things differently.
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.
Ben Ehrlich is the founder and General Partner of First Momentum Capital, where he helps seed a new generation of venture capital firms. He is also the Director of Strategy at the Long Term Stock Exhange. Previously Ben worked across the venture ecosystem supporting companies in the Canadian Technology Accelerator, OutCast Communications and Cribspot (YC 15). In his free time Ben takes his Irish setter doodle hiking and enjoys watching the University of Michigan football team (mostly) win.
[00:00] Intro [03:43] The origins of the Out of the Crisis podcast [06:54] Ben’s advice for rookie podcasters [08:35] How did Ben first meet Eric Ries? [11:46] The play-by-play for Ben’s interview with LTSE [13:36] What do decisions and conversations look like at LTSE? [16:23] Building trust among team members [18:29] How does Ben build trust with GPs? [25:14] How did First Momentum Capital start? [30:42] What was the pitch to close First Momentum’s first fund? [33:54] How does Ben underwrite Fund I managers? [36:42] How does Ben measure a GP’s future deal flow (as opposed to today’s)? [45:40] What does a “No” from Ben look like? [57:50] Thoughts on fund governance [1:05:57] What is the role of serendipity in Ben’s life? [1:08:17] Commisso Bakery in Toronto [1:10:35] Thank you to Alchemist Accelerator for sponsoring! [1:11:35] If you enjoyed the episode, I’d appreciate it if you could share it with one friend!
“Make sure to pay the government, doctors, and podcast producers on time.” – Ben Ehrlich
“If you want to build trust with someone [on your team], if they screw up, you have to be okay with them screwing up because you put them in the situation.” – Ben Ehrlich
“We’re looking for concentrated, non-correlated bets.” – Ben Ehrlich
Susan Kimberlin builds and invests in things that are Good & Useful. She is an angel investor, limited partner and product leader with a career that is equal parts building SaaS software products, and investing in companies, funds, teams, and projects that promote social equity with practical solutions for real-world problems. She is committed to bringing more diverse people into investing and the innovation economy. With a background in building search and natural language products for companies like PayPal and Salesforce, she leverages her experience to help her portfolio companies with product and fundraising strategies. Susan believes that bringing diverse perspectives to creative and practical challenges is the best way to create durable and impactful change.
In addition to her tech roles, Susan co-owns and manages Tammberlin Vineyards, growing Rhône wine varietals in Bennett Valley, Sonoma County. She works on documentary and narrative film projects as an executive producer, supporting creative projects that raise awareness, start conversations, and bring joy. She is a lifelong singer, and has been singing with pop a cappella group The Loose Interpretations for nearly 20 years.
[00:00] Intro [02:51] What are madrigals? [10:10] How to balance high expectations for your team and the trust that they will get there [14:53] How does Susan recognize drive and excellence in others? [21:49] What made Susan’s founding LP check in Backstage Capital so unique? [26:01] Difference between LP stakes and GP stakes [38:51] The smokes and mirrors behind the first pitch [43:54] Susan’s investment strategy as an individual LP? [50:21] What topic would Susan give a TED talk in that’s not startups or venture? [59:24] Thank you to Alchemist Accelerator for sponsoring! [1:00:25] If you enjoyed this episode, could you share this with one other friend?
Raida Daouk started her career in banking before moving to the investment team of BY Venture Partner, a venture fund with offices in Beirut and Abu Dhabi. She quickly climbed the ranks within the company and ultimately became a Venture Partner.
Recognizing a void in the market for personalized venture consulting services, Raida established Amkan Advisory, a boutique consultancy firm specializing in assisting family offices and high-net-worth individuals in identifying venture funds that align with their specific strategies. Given that first-time fund managers often possess the most aligned incentives with their investors, she understood the significant value they bring to the venture capital landscape. However, Raida also understood the reluctance of family offices to commit capital to relatively unproven managers. By curating a portfolio of carefully selected funds, she aims to mitigate the perceived risk associated with investing in first-time managers while still accessing the high-growth potential of emerging ventures.
Amkan Ventures emerged to offer LPs access to emerging managers beyond their direct reach. Focusing on small Funds I and II led by ambitious managers with a conviction-driven approach, the firm prioritizes delivering returns and nurturing opportunities in the venture arena.
Amkan Ventures’ first close occurred in April 2024, with one investment already made in a $30M fund I out of NY and one more about to be announced.
Raida currently serves on the Selection Committees of RAISE Global and The Bridge Platform.
[00:00] Intro [02:45] The impact of biology on Raida’s career [06:24] If Raida were to teach a founder psychology course [08:42] Raida’s definition of “running through walls” [10:16] Similarities and differences between founders and fund managers [11:36] What does GP-thesis fit look like? [14:38] How Raida got to a yes on Nebular Ventures? [20:35] The personas of different kinds of references [26:05] The one question that Raida always asks during reference calls [28:31] Is there such a thing as too many references? [31:57] What if you don’t have a network of references as an LP? [35:26] How does one set up the venture arm of a family office? [40:28] What is the GCC? [43:58] The best way to build relationships in the GCC [47:54] The origin story of Amkan Ventures [52:19] How did Raida build a strong understanding of the foodtech space? [53:58] Where did Amkan’s name come from? [58:26] What fund is in Raida’s anti-portfolio? [1:00:30] What’s Raida’s take on solo GPs? [1:03:10] How does your mindset change as an LP if you had evergreen capital? [1:06:58] Thank you to Alchemist Accelerator for sponsoring! [1:07:59] If you enjoyed this episode, it would mean a lot if you could share this with one other friend!
“It’s always best to start the relationship when there is no ask.” – Raida Daouk
“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
“The more constraints you have, the more conviction you will have in each manager.” – Raida Daouk
Lisa Cawley is the Managing Director of Screendoor, a highly respected LP of GPs, investing in firm-builders by firm-builders, with a unique model for partnering with allocators to access the emerging manager ecosystem. She’s been covering venture capital for more than a dozen years, since 2010 at Ernst and Young, a private investment firm, and now to Screendoor.
Lisa is a proud graduate of Loyola University Maryland where she’s earned her MBA and MS in Finance, as well as her BBA in Accounting, with a double minor in Information Systems and Spanish. Lisa is a CFA Charterholder and holds a CPA from the State of Maryland. In addition, she’s also a member of Class 29 of the Kauffman Fellows.
[00:00] Intro [03:43] How swimming has influenced Lisa’s life to date [11:16] How does Lisa evaluate competitive spirit in others? [14:36] The importance of understanding LP side letter terms [21:33] Investing as a team AND individual sport [23:45] Screendoor as the LP of GPs [28:43] How does Screendoor align incentives with their GP advisors? [31:05] How do GP advisors get assigned to portfolio managers? [35:09] LP-GP fit [37:46] Generation 1 vs Generation 5 of a family office [43:19] How does firm-building differ from fund-building? [49:09] Reference checking a fund manager’s “unique” value-add [55:24] Which two life lessons would Lisa canonize in a time capsule? [57:36] What was in Lisa’s last OS update? [1:01:23] The different facets of education in Lisa’s life [1:09:09] Final words on being thoughtful as an LP [1:14:05] Post-credit scene [1:25:27] Thank you to Alchemist Accelerator for sponsoring! [1:26:29] If you enjoyed the episode, I’d great appreciate it if you shared it with 1 other person!
“[Swimming, like venture] is both a team and individual sport.” – Lisa Cawley
“If you are governing things from a point of a legal document, whatever that may be and having to refer to that in order to trigger a behavior, that often to me feels emblematic of a transaction, not a relationship.” – Lisa Cawley
“Performance is everybody’s right to continue to do their business in venture.” – Lisa Cawley
“You can be a critic while still helping somebody, and you can be a critic while still giving empathy and doing so with respect.” – Lisa Cawley
Evan currently serves as Head of Venture Capital Investments and Research for Integra Global Advisors, a multi-family office. Prior to Integra, Evan served as Senior Manager of Data Science for Anheuser-Busch InBev where he oversaw data science and strategy for the US marketing organization. Prior to Anheuser-Busch, Evan spent two years as a Management Consultant at Marketing Management Analytics and held a technical role at Amazon. Evan earned an MS in Computer Science with a concentration in machine learning from Georgia Tech and studied computational and applied mathematics at the City University of New York and finance and psychology at the University of Miami.
[00:00] Intro [03:27] What are the mechanics of a great cold email? [07:54] Evan’s background in sports marketing [10:54] The kinds of data to ignore as an LP [13:01] Portability and replicability of track record [19:57] How much thesis drift is too much? [22:37] What happens when a partner isn’t pulling their weight? [29:35] Why does Evan have two bachelor degrees? [34:38] Why study quantum mechanics in applied math? [38:25] Evan’s journey to Integra [45:21] Buy vs Build at a fund-of-funds [47:40] Questions to ask when choosing which vendor to work with [51:24] How Evan thinks about operational diligence [58:30] Setting up an information policy in your firm [1:01:39] Valuation policy at a hedge fund vs VC fund [1:11:12] Why doesn’t Integra have strict mandates for geographies to invest in? [1:21:20] The fallacy with LPs overweighing DPI in 2020-2021 [1:27:15] Evan’s greatest life lesson [1:28:14] Evan’s favorite kosher restaurants in NYC [1:32:07] “Post-credit scene” [1:34:24] Thank you to Alchemist Accelerator for sponsoring! [1:35:25] If you liked this episode, it would mean a lot if you left a like and shared this episode with one friend!
“It’s important to be data-informed, not data-driven.” – Evan Finkel
“Not only does [an investment] have to be the best in that geography, it actually has to be better than the incremental dollar we could put in any other geography.” – Evan Finkel
“The way we think about VC is both on an absolute and a relative basis. On an absolute basis, we have to be able to underwrite a manager to 3X net or better, or ideally 4X net or better. Because otherwise the lockup doesn’t make sense. It doesn’t make sense to lock up your money for 10, 12, or 15 years with pretty limited distributions. In order to be able to consider a VC fund for our portfolio, we have to be able to underwrite it to at least 3X, but ideally 4X or better.
“But then there’s also a relative component. We’re not looking for the best relative managers. Understanding whether this is a really good year or weak year… You might be the best manager of a given vintage, but in absolute terms, you actually might not be quite as impressive. […] It helps us contextualize the performance of a given manager.” – Evan Finkel
“DPI generated in a chaotic environment is sort of similar to TVPI generated in a chaotic environment. It’s great it happened, but let’s contextualize it properly and don’t overweight DPI when you’re evaluating managers.” – Evan Finkel
“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
Just the other day, I was listening to one of 99% Invisible’s episodes, interestingly titled as “As Slow As Possible,” named after the organization ASLSP, which stands for the same. My knee-jerk reaction was that the abbreviation and the first letters of each word just didn’t match up. Luckily, Roman Mars and Gabe Bullard explained. Although it still left something more to be desired.
“The title is also a reference to a line in James Joyce’s novel Finnegans Wake. The line is: ‘Soft morning, city! Lsp!’ Where lisp is just spelled L S P.”
Nevertheless, the episode itself circles around the concept of taking one song and using the entire lifespan of a pipe organ (639 years) to play that song just once. That even a single note would take two years to play. A fascinating concept! And which led me down a rabbit hole of thought experiments.
What if we took our favorite song and extrapolated that to the human lifespan? Say 90 years. What note would we be on today? Have we gotten to the chorus yet?
So for the sake of this thought experiment, for a brief second, let’s walk down the lane of music theory. Take the average pop song. The average pop song plays for about three minutes. And many at 120 beats per minute. Apparently, 120 bpm is also the golden number you want to get to if you’re working a crowd as a DJ. You never start at that speed, but you work your way up throughout the night. And if you can get people’s heart rate matching the beats per minute, you’ve hit resonance. But I digress.
So, taking round numbers, the average pop song has a total of 360 beats. Most songs are in 4/4 time. In other words, four beats per bar. An average pop song takes about 2-4 bars for the intro. 16 bars for a verse. Possibly, another 4 bars as the pre-chorus. And the first chorus doesn’t really start till bar 25. And usually lasts another 4-8 bars.
Now, if we were to extrapolate a song to the average human lifespan. 90 years. 360 beats across 90 years. Assuming it takes 24 bars to get to the chorus, the chorus doesn’t start until we’re 24 years old. And the full chorus doesn’t end until we’re 32 years old. With each note lasting a full three months. And the second chorus starts around age 48.
Then again, I remember reading somewhere that most pop songs are played in multiples of four or eight. And that most of these songs only have 80 bars. If that’s the case, the first chorus doesn’t kick in till we’re just past 28 years old and ends around 36 years old.
In either case, the first chorus happens around the time when most people would define as their prime. Young enough to take risks; old enough to be dangerous. The second chorus seems to fit as the second wind people have in their careers. Hell, HBR found, the median age of a startup founder when they start is 45. And with that reference point, they’ll be 47 or 48 when they become venture-backed.
Obviously, this is just me playing around with numbers. Correlation does not mean causation, of course. But nevertheless, the parallels… curious and uncanny.
P.S. Jaclyn Hester and my episode together on Superclusters got me thinking about a lot how much music applies to our lives and how we live and think.
#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.
Inspired by John Felix in our recent episode together, as LPs, we often get pitches where GPs claim they’re an N of 1. That they’re the only team in the venture world who has something. Usually it’s the fact that they have brand-name co-investors. Or they run a community. Or they have an operating background, like John says below. And it isn’t that unlike the world of founders pitching VCs.
The truth is most “unfair advantages” are more commonplace than one might think. Even after one hears 50 GP pitches, one can get a pretty good grasp of the overlap.
For the purpose of this blogpost, the goal is to help the emerging LP who has yet to get to 50-100 pitches. And for the GP who hasn’t seen that many other pitches to know what the rest of the market is like. Obviously, the world of venture shifts all the time. What’s unique today is commonplace tomorrow.
For the sake of this post, and to make sure I’m not using some words too liberally, let’s define a few terms I will use quite often in this blogpost:
Product: A fully differentiated edge that an emerging manager/firm has. In other words, a must-have, if the firm is to succeed.
Feature: A partially differentiated edge, if at all, an edge. In many cases, this may just be table stakes to be an emerging manager today. In other words, a nice-to-have or expected-to-have.
Networks
Product
Feature
Differentiated community (high/consistent frequency of engagement)
Alumni network (school or company)
Downstream investors that prioritize your signals
In-person events
Keeper test
Virtual events
Co-investors
Networks, in many ways, are synonymous with your ability to source. It’s the difference in a lot of ways from co-investing versus investing before anyone else (versus investing after everyone else). The latter of which is least desirable for an LP looking for pure-play venture and risk capital.
The quickest check is simply an examination of numbers. LinkedIn or Twitter followers. Newsletter subscribers. Podcast subscribers. Community members. While it’s helpful context, it’s also simply not enough.
Here’s a simple case study. Someone who has 5,000 followers on LinkedIn with hundreds of people engaging with their content in a meaningful way is usually more interesting than beat someone who has 20,000 followers on LinkedIn, who only has 10s of engagements. Even better if one generates a substantial amount of deal flow with their content alone.
One thing that is hard to evaluate without doing an incredible amount of diligence is your founder network referring other founders to you. From one angle, it’s table stakes. From another, true referral flywheels are powerful. In the former, purely having it on your pitch deck without additional depth makes that section of the deck easily skippable.
One of my favorite culture tests is Netflix’s Keeper test. That if a team member were to get laid off or fired, would you fight to keep them or be relieved? The best folks, you would fight to keep. And as such, one of my favorite questions during diligence to ask the breakout / top founders in each GPs’ portfolios is: If, gun to head, you had to fire all your investors from your cap table and only keep three, which three would you keep and why?
Do note I differentiate breakout and top founders. They’re not mutually exclusive, but sometimes you can be brilliant and do everything right and things still might not work out. But smart people will keep at it and start a new company. And maybe it was a smaller exit the first time, but the second or third time, their business may really take off. Of course, sometimes I don’t have the same amount of time to diligence each GP as an LP with a team, so I generally ask the question: If all of your portfolio founders were to drop what they’re currently doing regardless of outcome, and start a new business, who are the top 2-3 people you would back again without hesitation?
At the end of the day, for networks, it’s all about attention. It’s not about who you know, but about how well you know them AND who you know that TRUSTS what you know. In an era, where there is more and more noise and information everywhere, a wealth of information leads to a poverty of attention. But if you have a strong foothold on founders’ and/or investors’ attention in one way or another, you have something special.
Experience/expertise
Product
Feature
Early hire at a unicorn company + Grew a key metric by many multiples
Hired top operators who’ve gone on to change the world
Experience at a larger firm where you didn’t lead rounds / fight for deals
Independent board member
Experience only matters here where there are clear differentiations that you’ve seen and can recognize excellence. In a broader sense, having an operating background is unfortunately table stakes. As John mentioned, any generalities are.
While strong experiences help you source, its main draw is that it impacts the way you pick and win deals. Only those who have experience recognizing excellence (working with or hiring) know the quality in which A-players operate. Others can only imagine what that may look like. That’s why if you’re going to brag that you’re a Xoogler (or insert any other alumni), LPs are going to care which vintage you were at Google. A 2003 Xoogler is more likely to have that discerning eye than a 2023 Xoogler. The same is true for schools. Being a college dropout from a Harvard and Stanford is different from dropping out of college at a two-year program. Not that there’s anything wrong with the latter, but you must find other ways to stand out if so.
Given a large pool of noise when it comes to titles, it’s for that reason I love questions like: “What did you do in your last role that no one else with that title has done?”
Additionally, when it comes to references, positive AND negative references are always better than neutral references. Even better is that you stay top of mind for your founders regularly. A loose proxy, while not perfect, is roughly 2-3 shoutouts per year in your founders’ monthly updates. It takes a willingness to be helpful and for the founders to recognize that you’ve been helpful.
Process
Product
Feature
Response time/speed
Some generic outline of an investment process
Evidence of a prepared mind
Doing diligence
Asking questions during diligence most others don’t know how to
Yes, response time (or speed in getting back to a founder, or anyone for that matter) is a superpower. It’s remarkably simple, but incredibly hard to execute at scale. By the time, you get to hundreds of emails per week, near impossible, without a robust process. One of my favs to this day happens to be Blake Robbins’ email workflow who’s now at Benchmark.
Now I’m not saying one should rush into a deal, or skip diligence, but making sure people aren’t ghosted in the process matter immensely. As my buddy Ian Park puts it, it’s better for a founder or an LP to know that a GP is working on it than to not feel heard.
You’ve probably heard of the “prepared mind.” The idea that one proactively looks for solutions for a given problem as a function of their lived experiences, research, and analyses over the years.
Its origin probably goes as far back as Louis Pasteur, but I first heard it popularized in venture by the folks at Accel. Anyone can say they have a prepared mind. From an LP’s perspective, we can’t prove that you do or don’t have it outside of you just saying it in a pitch meeting. That’s why a trail of breadcrumbs matter so much. Most people describe it as a function of their track record or past operating experiences. Unfortunately, there may be a large attribution to hindsight bias or revisionist’s history. Being brutally honest with yourself of what was intentional and what was lucky or accidental is a level of intellectual honesty I’ve seen many LPs really appreciate. As an example, I’d really recommend you hearing what Martin Tobias has to say on that topic.
But the best way to illustrate a prepared mind is easier than one thinks. But it also requires starting today. Content. Yes, you can tweet and post on social media or podcast. But I’d probably rank long-form content at the top.
Public long-form writing (or production in general) is arduous. The first draft is rarely perfect. Usually far from it. With the attentive eye and the cautious mind, you go back to the draft again and again until it makes sense. Sometimes, you may even get third parties to comment and revise. Long-form is like beating and refining iron until it’s ready to be made into a blade. And once it’s out, it is encased in amber. A clear record of preparation.
In closing
Pat Grady had a great line on the Invest Like the Best podcast recently. “If your value prop is unique, you should be a price setter not a price taker, meaning your gross margins should be really good. A compelling value prop is a comment on high operating margins. You shouldn’t need to spend a lot on sales and marketing. So the metrics to highlight would be good new ARR/S&M, LTV:CAC ratios, payback periods, or percent of organic to paid growth.”
In a similar way, as a venture firm, if your value prop is truly unique, you’re a price setter. You can win greater ownership and set valuation/cap prices. If your value prop is compelling, the quality of your sourcing engine should be second to none, not just from being present online, but from the super-connectors in the industry, be it other investors, top-tier founders, or subject-matter experts.
Of course, all of the above examples are only ones that recently came to mind. The purpose of this blog is for creative construction and destruction. So if you have any other examples yourself, do let me know, and I can retroactively add to this post.
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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.
