Ep. 1: Introduction
It’s not great to start out by emphasizing your ignorance. How much can someone know about a person they’ve never met? Well, when it comes to VCs, I think it’s actually possible know a good bit.
In the wide world of venture investors, I’ve met only a few people who would really be called “VCs.” Venture investors take many forms, but the title VC seems to be reserved for a higher order of individuals.
Most often you’ll hear the two letters used in reference to an institutional investor, particularly one that writes $100k+ checks. The investment stage also plays a role in evoking the title. Seed investors are sometimes called VCs, and personally I include them in the category, but I think everyone would agree the line undoubtedly has been crossed into VC-dom by the time we start talking about Series A investors.
Now that definitions are out of the way…
My interactions are limited. I’ve met my fair share of incubator mentors, angel investors, bootstrapped entrepreneurs, and so on; but VCs have made far fewer appearances. I’ve never worked for a venture fund, and I’ve never sought institutional funding for my ventures. Despite this, I feel that I have a fairly strong understanding of how a VC approaches the world.
Over the next few months, I will give a guided tour through the world of “capital V, capital C” Venture Capital. From deal sourcing and fund differentiation to investment decision frameworks and startup reviews, I will put useful knowledge on paper. Whether or not I know anything isn’t a particularly interesting question, and regardless that question will be answered over time. On the other hand, there is an interesting question hidden here: why could it be possible to learn the ways of VCs from a distance?
Startup-Fever
There are a few underlying drivers behind the proliferation of VC insights. One cause is the emergence of startup idolization in popular culture. We’ve seen a surge of startup (and therefore VC) related content, and so many have learned through consuming copious content. From Chris Sacca on Shark Tank to Silicon Valley on HBO, the average American has been exposed to VCs, and they want more. I’m not trying to say that we can learn how VCs think from Peter Gregory of Silicon Valley (cicadas, cicadas, cicadas). These main-stream manifestations are accompanied by perfectly scientific counterparts, like Peter Thiel’s Zero to One, a few quality podcasts like 20-Minute VC, Y Combinators class at Stanford (which is all online), Mattermark daily, AngelList, and many more. VCs are increasingly pulled into the spotlight by consumer demand. At the same time, they are thrusting themselves onto the stage.
Table Stakes
VCs’ PR games have always been fantastic, and this includes giving out glimpses of their secret sauce. This is driven by a deep need for differentiation to compete for top deals. An easy way to think about this is through he paradigm of product-market fit. What do VCs sell startups in exchange for equity? It’s not money — money is table stakes to be a VC. The topnotch startups want the fund’s partners to provide council, acquire key customers, attract talent, assurance of follow-on capital, and often industry-specific value. To attract these deals, VCs can’t be shy about sharing how they think, and thus, I’ve read everything I can get my hands on. Luckily for me, there’s more pressure than ever for VC’s to bring their PR game up another level.
Fishing for Startups
The nature of venture capital as an asset class is that only a handful of stellar deals come available for investment each year. This means the best VCs get their money into the best deals before the startup fills their round. But where do the best deals come from? Where does innovation and disruption happen? The answer to those questions has been consistent over time: they come from where you don’t expect. They come from the fringes of invention and edges of technology. Niche groups spur narrow innovations that sometimes have broader implications, and the key for VCs is to cast a wide net into the water to ensure they’re not going to be late to the big party.
At the end of the day, however, VCs can’t be present at every edge of invention; therefore, it’s also important for them to pull innovators inwards. This means more content and more transparency into their models and value. As innovation become more niche and innovators become more dispersed overtime, access to VC mindsets only grow.
Moving Forward
“ I don’t actually know what I think until I try and write it.” -Kevin Kelly
I have two goals over the next several months of writing. First is to consistently sit down and write, simply for self improvement and to solidify my own thoughts. I want to develop a better paradigm for assessing businesses. My second goal is to prove the hypothesis that the ethos of VCs can be attained from a distance, and based on this, we can develop a sufficiently sophisticated investment thesis. Of course I won’t be avoiding VCs simply for the sake of keeping my distance; rather, I’ll be checking my evolving beliefs against as many people as I can. It’s not going to be about “this is what VCs think.” I’ll be writing what I believe, and you can be the judge of whether or not it’s inline with conventional (or unconventional) VC wisdom. Consider this a running log of learning and thought consolidation.
Here goes nothin’!
