1 year in VC

Its not as it looks from the outside!

I completed a year in VC in March after several years as an operator. I’d advised several startups before, and also written 10+ angel tickets before becoming a full time investor, so I thought I knew 'the game’. Its actually quite different though. Here are some notes to myself/things I learnt:

1. Conviction: Writing an angel ticket of a few $k vs leading a round of a few $m is very very different, almost as different as playing street cricket vs one day internationals. Information as a VC at the earliest stages is not *that* much more than what an angel would have, and the best deals close really really quickly (even in a bad macro environment). You need to decide, and you need to decide quickly

2. Capacity: Realistically, I can sit on 8-9 boards at one time and actually show up. So every investment is 1/8 slots gone for the foreseeable future. Its a lot harder to take that decision than the capital investment decision

3. Consensus Risk: VC's see whole of market. Angels do not. A very interesting dynamic I observed is that you see a space heating up (e.g. office of the CFO) and pretty much most VC's independently converge upon the same 1-2 companies. I call this 'consensus risk'. These 1-2 companies raise a lot more capital at higher valuations from better funds vs the others. As an angel/part timer there is no way one sees whole of market, and unfortunately many founders seem to have little idea of this

4. Flight to Quality: These companies subsequently raise more capital/likely to raise more capital, and this results in lemming behaviour and 'hot' deals. As a VC, one way to win is by trying to win the hot deals, a better way in my opinion is to do the work and read the market to get to the hot ones before the others. This is of course easier said than done

5. Pre-seed/seed (first institutional round): is f*cking hard. I have nothing but respect for funds that specialise in this stage. The economics are hard, survival rates low, you need to put in a lot of work, and most importantly you need to really pound the pavement more than anyone else to source

6. Performance: Once you become an investor you start seeing performances of companies and funds. Often the companies you thought were 'great' from the outside do not offer great returns, while several unknown ones have returned capital well. Same goes for funds too!

7. Sourcing: I used to think before becoming a VC, that sourcing after a point is automated/don't need to do/you could get more junior team members to do it. Untrue, I think sourcing is like an SIP contribution, keep doing it so it compounds. Access is everything

8. Luck: There is a lot of luck involved in venture. Maybe there are all seeing fortune teller VCs, but as far as I've read/seen so far many companies were great investments because of a 'lucky' event which could be to do with the business, investment timing, or exit timing. They would have been good investments otherwise

9. Macro: Theoretically I used to think since VC is a long game (10+ years) the macro environment will have minimal effect. However, macro surprisingly affects valuations, ability to raise money and general optimism by a lot

10. TAM: TAM calculations are largely an intellectual exercise if the founder is exceptional. On the other hand if the founder is less than exceptional TAM calculations are the theoretical limit

11. Risk: Anecdotal, but I surprisingly see more deals get done with team risk (questionable team) rather than direction risk (what are you building). I still think it is better to back a strong team with questionable direction

12. Passing: It is easy and lazy to pass. It feels like work, but its actually lazy. Pulling the trigger is hard and is where reputations are built

13. Content expertise: I used to think its important to be deep in a space to make the right investment. However I find that there are several VC's who have little depth in a given space but are great investors. I need to figure out how as my operator default is to go deep

14. DD: Founders don't do nearly as much DD on VC's as much as VC's do so on founders. This is not great. VC’s do several DD calls for example, founders do 1-2

15. Fundraising: is a different skill to business/company building and sadly so. Some founders are great fundraisers, others are great business builders. The best ones are both. I think learning fundraising pays off dividends, especially until series B

16. Sales: A large part of VC is sales. So show up on time, stay present, run a CRM, try to fulfil the promise you made at pitch and don't be an asshole

17. Hive mind: VC's love to meet other VC's. Especially same stage VC's, which is counterintuitive. I don't fully understand why yet

18. Work: as a product person involves tangible, real things. You can do a lot of 'work' as a VC, pull long hours and not move the needle one bit. For example, you could spend a full year going to events, meeting VC’s (see 17 above), meeting some founders, some operators and not do a deal. On the other hand you could theoretically work 2 days in a year, do 2 deals and not do much else (presuming the deals work well)

19. Perception: Every deal looked great at some point and shitty at some point. Not something one should solve for!

20. 'Help': VC's don't build a company, founders do. As a former operator it is quite painful sometimes to 'influence' rather than 'do', but that's the tradeoff of the job!

21. How VC works: Very few founders seem to know how VC actually works - spending 30 mins on this might result in better understanding VC outcomes and behaviours. Well worth it!

I will revisit these and add more to this X thread as I learn more during my career in VC. Hit subscribe, and follow on Twitter.

If you’d like me to elaborate on any of the above points, let me know which one(s) and I’ll try to do so!

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• What I am reading now: Flash Boys by Martin Lewis, Clear Thinking by Shane Parrish

• I recently was on this podcast to talk about the shift from operator to investor, and thought you might like it too - check it out and let me know!