3 Years in VC

Lollapalooza, fundraising and becoming a 'tenured' investor

After over a decade of operating, I completed 3 years in VC in March this year. Every twelve months, I like to look back at what I learnt each year. If you have not done so already, I recommend reading my reflections after Year 1, and Year 2.

These are structured as notes to myself:

1. Lollapalooza is everything

This is the most important learning, and I’m obsessed with it

Charlie Munger coined the term ‘The Lollapalooza effect’. When I read it many years ago in Poor Charlie’s Almanack, I didn’t fully realise the extent of it. Many years later, as a full time investor, I now fully appreciate its importance in life and investing.

Simply put, the Lollapalooza effect is defined by Charlie Munger, in the Outstanding Investor Digest as follows:

”The most important thing to keep in mind is the idea that especially big forces often come out of these one hundred models. When several models combine, you get lollapalooza effects; this is when one, two, three or four forces are all operating in the same direction. And, frequently, you don’t get simple addition. It’s often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass - and you don’t get anything much worth seeing if you don’t reach the mass. Sometimes the forces just add like ordinary quantities and sometimes they combine on a breakpoint or critical-mass basis”

Good VC’s find this Lollapalooza effect once in a while. Great ones find it consistently.

What does this mean though?

I think when you are starting out in venture, you might make mistakes that go to zero: Wrong founder, wrong market or insufficient traction. After a few years and deals, you start getting to a point where it’s hard, but still possible to get something terribly wrong. But you never stop needing to find that nuclear explosion. That moment of critical mass.

Most deals are additive. Strong team, decent market, early traction: they all combine predictably. Across the five deals I lead, and the 150 odd deals I have visibility over, I’ve noticed that the real Lollapalooza fund-returners are different. In these cases the market was ready, the founder was obsessed, distribution clicked, and the timing was right. Suddenly it’s no longer an additive deal. Instead it’s compounding into something no spreadsheet or model could have anticipated. It’s going critical.

Year 3 taught me to ask a hard question when I look at a deal: Are the forces in play here close to a threshold? Or will they just add up to “just fine”?

2. There is really no participation prize

I have been working my ass off.

In 2026, I have been in a ‘live deal’ situation every single week, and I have had maybe one weekend to myself so far. And for all that ass-offing work I have 0 deals to show in the last few months.

Which means I could have mooched about on a beach somewhere, nonstop since last summer, and made the same difference to my career. Namely: nada.

I’m exaggerating a bit of course. The incessant work does help in terms of building your pattern matching algorithm, improving seen rate, and learning. But realistically, in this business, only deals matter. And even then the great deals are the ones that really move the needle.

There is no prize for trying hard.

Talking of great deals:

3. How hard is it to get to the greats?

Turns out it’s really damn hard. Cole Rotman had an analysis on X in which he said that there were 22 investors globally who had ever led a Series A into a company that later IPO’ed for $5B+.

Even if you assumed he was off by a lot, that number is not more than 50 investors. If he was terribly wrong, it is probably 100. This excites me a lot. There are very few, if any, professions where I can get to the very top with such a binary switch. Where you go very big, or go… very home? You know what I mean.

At the same time, this also tells me something somewhat more sobering: It is very, very hard to tell if a company is going to go Lollapalooza at Series A.

But once you do, once you’ve spotted one great deal, it’s probably a lot easier to do it again. This is illustrated by the small number of investors in Rotman’s analysis: Many of those investors went on to spot several great deals. There are few winners, but they tend to keep winning.

There are things that can make a hard thing even harder. It is even harder if you are not in the Bay Area where the density is very high. It is hardest if you are not in a tier 1 Bay Area fund given the lack of visibility that entails over the fountainhead, if you will, of Tech.

This doesn’t mean it’s impossible, though. In fact I see this as an advantage for me given I can look where no one is looking. The Bay Area has a high density of Lollapalooza companies. It also has a high density of investors hunting for them. The ratio is brutal.

Outside the Bay Area, both are rarer. The ratio is more forgiving. My competition thins faster than the opportunity does. Which means, if you can develop the pattern recognition to spot a nuclear deal in a market that most investors seldom visit, the returns on being right are disproportionate.

Several people have done this very well and systemized it. (Firat Ileri at Hummingbird being a top example.) But I have to hustle harder, take more flights, and be willing to be a lot more flexible than other people. Most importantly, I might have to do deals that break the ‘pattern’ of what mainstream Bay Area investors look for, or think of. This pattern-breaking could be a combination of deal structuring, stage, type or any other variable.

4. Price really doesn’t matter post PMF… in the right markets.

But it will bite you in the ass if you get either PMF or the market wrong.

A couple of years ago I used to feel quite smug after declining companies on the basis of price, and smugger still when discussing them with other GP’s over drinks: ‘Ah yeah I saw that deal, what a ridiculous price it got done at eh?’

Turns out that was really stupid. Some of those companies are doing very well, and folks who led that deal are usually hoarse from laughing their way to the bank.

There were, of course, companies that were priced up and then struggled. This was primarily due to

a) PMF actually not being there and/or

b) market turning or not expanding.

This particular learning isn’t net new, but it’s one I’ve internalised over time.

There is more to price, than price.

5. The quieter your inbox, the harder the job.

It is a lot harder to be an investor in a fund with < 100% inbound.

6. It is better to get into the right company with lower ownership rather than not get into the company at all.

I used to think it was impossible to increase ownership in a company over time. I was wrong. And even if you can’t get a big enough slice, you still managed to get a great outcome. Getting in matters. You are free to disagree, but be ready to pick a fight. I take this lesson very personally.

Let’s play this out. Here’s what happens when you have an opportunity to invest in a great company without the kind of allocation you want:

1. You decline investing because ‘it is not a fund returner at available allocation’: this is actually not a great line of argument, because you are assuming that you can’t increase ownership over time. Congratulations, you now have 0% ownership of a great company. A story you don’t want to brag about, “I saw Series A of X company, and declined”, and no chance of being a great investor

2. You invest, but you cannot increase ownership: You still end up with a fantastic return, and a ring side view + logo creds of a fabulous company. If you invested in Stripe at Series A, that will count towards your funds track record. It will also help you spot what a great company journey looks like, which, as we established above, is a journey privy to only a handful of people. Additionally, with great companies, you often end up with a return that is beyond your wildest dreams. For example: A friend who invested into ElevenLabs’ pre seed didn’t get the allocation he wanted, but did it anyway. It returned his fund and much, much more.

There are a few arguments that people make against this, that, on the surface sound smart, but in reality are not so:

1. Kaushik, what about the option value of investing the same initial check into another company? The deal is the one that’s in front of you. You don’t know if you will ever see a company like that again. Every vintage, there are a handful of companies that matter. The odds of you seeing another great company within that fund vintage tend to 0

2. Kaushik but it is not a fund returner, and my fund has a strategy that every investment must be a fund returner. Ok, this is a legitimate argument. But it is predicated on the fact that there will be more than 1-2 ‘exceptional’ investments (non fund returner), that mess up the fund strategy and take you to a 3x’er upside. So it’s important that when you do this, you don’t do a spread of non fund returner investments, but keep it to true exceptions

7. IRL for conviction, research for confirmation

For most companies, in-person meetings and customer + founder references will create conviction. Desktop research will only confirm it, but is not going to increase conviction. Too much time on desktop research is a waste of time.

8. VC is an apprenticeship business at all levels

However, not everyone is lucky to have a legendary investor as their mentor. Which means that one needs to find a) several of these and b) be able to filter what to learn from whom. Additionally, given that the bar is actually quite binary (see pt 3 above), a great investor might actually just have been lucky once.

9. You can build founder relationships without investing, and this is a good idea

Founder relationships are everything. Even if not a ‘yes’ to invest, investing in the founder relationship itself helps a ton. For example, I couldn’t invest in a founder at seed, and Series A, for a number of reasons. Even though I liked them, and the deal, a lot. Later, I was able to help a growth round into the company from one of our sister funds.

Another founder who had a pleasant experience working with me is now one of my best deal sources.

10. Reputation compounds. Getting your first ‘good deal’ is hard, and then it gets slightly easier

Unless you are at a Tier 1 Bay Area platform, you are going to get shit deals initially. Then you find a decent deal. Then you find a good one. Then you start getting better deal flow. Ironically, this is a vicious and virtuous circle. Just that you have to go through both. Vicious in that you will only get terrible deal flow until you find a good one. But once you find a good one, it keeps getting better. Reputation compounds.

11. Time is a real variable

Time heals all, and time also reveals all. Sounds like Taylor Swift, but it’s true.

As I spend time in this industry, the companies I invested in are maturing. Many of them are raising up rounds. Others are going the other way. Time will eventually tell.

It’s also… kind of scary? Because a deal I do today is only going to ‘count’ in 3-5 years time. (Unless I get lucky.)

12. Fundraising is the highest and most complex form of enterprise sales

I’ve now spent a ton of time with LPs and fundraising. Fundraising is the absolute peak of enterprise sales.

(The Taylor Swift moment has passed.)

I don’t envy LP’s though. They have to pick a manager who, in the extreme, will be managing <1% of their capital. If the managers do exceptionally well, they might return >5x net. If they perform average, they will return 2.5-3x net.

This manager fills a hole in your portfolio. They need to maintain a team that is stable. They also need to have the right LP servicing mechanics, and the capital you give them is going to be a 10 year commitment.

Ultimately, I think the most important thing in this equation is trust. And I’ve come to learn that there are three ways to develop trust with an LP:

1. Consistent communication, whether the news is good or bad

2. Mastering your craft, and making sure they see it

3. And finally: no surprises

I have a lot more to add on the topic of LPs. But I will save it all for next year. 🙂

13. Keeping the operator lens sharp is hard

It has been 3.5 years since I built anything meaningful. AI has happened since then. Am I irrelevant? Is my operator-self redundant? The fear is real.

14. AI has changed everything

You can pass on a company, and in 3 years time it’s the next Lovable or ElevenLabs.

This is the kind of company trajectory that used to take a decade to show.

Also, it used to be said that Europe could not produce winners at American scale or speed. And yet, for every Harvey you have a Legora; for every Sierra you have a Parloa; and you have Lovable, Synthesia, ElevenLabs and several others. AI has played a huge part in levelling what seemed like eternally uneven playing fields.

It’s undeniable that everything we know from the last decade will be shattered by AI

15. Terrible advice. Everywhere you look

Choose whose advice you take. This note is no exception to the rule.

See you next year.