Last week, I wrote an essay about the importance of brand-building for a VC. In it, I reference Fred Destin’s tweet. This post is more or less of a part 2 to the notion of “picking” versus “getting picked”.
As an early-stage investor, and even more so as a scout, where it is my job to qualify leads at the top of the funnel, there are 2 types of investments:
- Founders you pick
- And founders who pick (you)
The former is in order to build your brand. The latter is a result of the brand you built.
So for some additional context, in the last two days, I just had to ask a few investors who dance around this phenomenon and have a track record for winning outsized returns.
What I learned
In my email conversations with them, here’s what I learned:
On picking:
- “Picking startups” is thesis-driven. “Getting picked” is value-driven. It’s not mutually exclusive. In fact, in many cases, it’s symbiotic.
- “Picking” startups, especially at the earlier stages (i.e. pre-seed, seed), often comes down to if you can get conviction faster than anyone else.
- The earlier the stage an investor invests in, the more likely he/she will focus on “picking” the founders. For instance, angels, pre-seed, and seed investors.
- If an investor typically leads rounds, they are more likely to be “picking” as well.
- Markets also matter. If the startups exist in a new market or are attempting to create that market, investors also spend more time “picking”.
On getting picked:
- In situations where investors “get picked” and founders have leverage, valuations end up skyrocketing with larger rounds and less dilution. In effect, may misalign incentives between founder and investor.
- For many, it’s a dichotomy they might reflect on when doing fund and deal flow analysis, but not as a pre-meditated approach.
- For non-lead investors (i.e. angels, rolling funds, etc.), many of whom don’t have a huge brand yet, there is incredible value in empathy and operating experience, which often give you an edge over traditional VCs. Especially since you can’t compete with their check sizes.
- To “get picked”, build relationships before founders need to raise. Be high-value, actionable, and timely. Hustle like the founders do.
- Be differentiated. If you have the same thesis/brand/network as every other VC out there, you will just be another number, but never THE number – the signal for a founder among the noise. You don’t have to be unique on every variable (thesis, brand, network, operating experience, etc.), but you have to be stellar and unique in at least one.
- Help founders with their “firsts” – first hire, first fire, first fundraise, etc. So that you will be the first fund they think of when they raise/need help.
Finding meaning in investments
If I could paraphrase the words of Keith Rabois of Founders Fund in his recent conversation with Jason Calacanis, picking and getting picked analogizes to:
- Investment you took a bet on when everyone else turned in the other direction
- Where “your decision to invest in the company made a meaningful difference in their potential”.
- Investment where the company was going to get funded regardless of your investment, but your advice, resources and/or network sped up the escape velocity of that startup in a meaningful way
Keith was early into Airbnb, Palantir, and Wish, when others were doubtful on the product thesis. And it contrasted with his rationale to invest in Max Levchin‘s Affirm. He elaborates on the pod that Max might have gotten larger checks on better terms than he did with Keith. But Max chose Keith for the value Keith could bring to the table.
In closing
As Miami Heat’s Hall of Famer Pat Riley once said, “When you leave it to chance, then all of a sudden you don’t have any more luck.” Investing is all about being intentional. Whether an investor “picks” or “gets picked”, they set themselves for opportunity. In the words of Seneca, “luck is where opportunity meets preparation.” Preparation being the keyword. And for a VC, that includes:
- A robust network (deal flow + potential hires + potential startup customers/partners + downstream investors),
- Brand (network + content + knowledge/experience + track record),
- Resources,
- And a thesis.
Photo by Mario Mendez on Unsplash
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