Builder or Investor?

The summer before my junior year was one of the most impactful couple of months in my life. I had two internships that summer, one at a PE shop in Chicago and one at a medical device startup in New Hampshire. Chicago was the first time I ever really lived on my own. As a social extrovert, this was hard but, ultimately, really good for me. My summer in Chicago was a step function increase in my personal growth. I don’t think it is a coincidence that I met the woman who would go on to become my wife shortly after returning to school in the fall. I was finally mature enough for that kind of relationship, and my time in Chicago had a lot to do with that. 

If Chicago was an accelerant for personal growth, New Hampshire was a catalyst for significant professional development. 

I was working at a medical device company while also living with the CEO and his family. It was an intensive business boot camp. During the workweek, I did a rotation throughout the company working on a new project each week. Combined with daily 1v1s with departmental heads, the internship served as a fantastic introduction to the various dimensions of a technology business. 

Outside of work, the CEO had me do his P90X workouts with him every day before work at 5 am. This may sound early, but it was a luxury compared to the 4 am wake-up calls I had on the weekends for fishing. 

I learned a lot through this experience. I learned the importance of being able to speak just as easily with a dockhand as with a CEO. I learned what a world-class culture feels like and the impact of working at a mission-driven company. I learned that if you want to be truly successful, it is more important to be among the world’s best at something than what that something is. 

I think I learned as much out on the boat talking with the CEO as I did in the office. One conversation in particular sticks out. He told me, “at some point, every successful person has to decide whether they want to be a builder or an investor.” 

The concept of builder vs. investor has informed much of my career thus far. 

After school, I had the opportunity to work at an elite, global investment shop like The Carlyle Group. I got so much from that experience, but I knew pretty early that I wanted to try to find a way back into the startup world as my next step. I knew that I wanted to be part of building companies that make an impact through solving important problems, but I didn’t know the first thing about actually working at a startup. 

I thought through my potential options as follows: 

1. I could go try to work at a startup. 

2. I could go try to work at a big tech company. 

3. I could try to get into venture capital. 

My only tangible skills were financial management and analysis, so if I did pursue being an operator, it would have to be in some sort of financial analyst role. As positive as large swathes of my Carlyle experience had been, it had also made me realize that I didn’t want to be a cog in the wheel at another big company. Spending the previous two years working on billion-dollar oil & gas transactions also made me want to work with more nascent companies. 

So I actually saw my options as follows: 

1. Try to find a startup to join. It would have to be in a financial analyst role, which generally only more mature companies recruit. I would be buying a single lottery ticket, but it would really pay off if the company became super successful. 

2. Try to become a VC. I hoped to leverage my investor’s skill set to land a role at a seed-stage investing shop working with early-stage companies. Instead of a single lottery ticket, I rationalized that I would have visibility on a whole host of different startups. I would develop a broad view of what success looked like, which could inform whatever was next. 

I decided to pursue the VC path. My logic was that I could be a real growth partner to startups. I may not be doing the building myself, but I would be an integral part of that process as an investor. I thought I could be a builder through being an investor. 

And I was wrong. 

Now I don’t regret my choice. It worked out well for me. I thoroughly enjoyed my time as a VC. I learned a lot, built a ton of great relationships, and ultimately ended up here at Wharton, which had been my goal for as long as I could remember.

I didn’t make a wrong choice, but I can see that my logic was fundamentally flawed with hindsight. 

The reality is that VCs aren’t builders. They may think they are, and maybe as partners on boards, VCs are adjacent to the building process, but they aren’t builders. Not really. Especially not junior-level VCs. 

I had this deep desire to build something meaningful. To be part of creating something new that I could hang my hat on, point to, and say, “I did that.” And as much as I wished it could, I realize now that VC was never going to scratch that itch. 

I think a lot of junior and would-be VCs fall into this builder trap. They want to be a company builder, but they don’t have any sort of technical or operational background, so they pursue being a VC. The career provides access to startups has a sheen of sexiness (to its ultimate fault, I would argue).

After a couple of years, all the associates who wanted to be builders end up pretty disillusioned because they aren’t making the impact they had hoped they would.

What generally happens next is these aspiring builders leverage the network they have cultivated and their knowledge of startups to land an operating role at a company. Going from VC to operator isn't a bad route at all (at least I hope not because it is the one I am pursuing!). You will leave VC with a robust network in the space, a high-level view of what it takes to build a successful tech company, and the ability to evaluate what strong companies look like. 

I don't think this path is as good as jumping straight into an operating role at a future unicorn, but it probably has a lower variance. Worst comes to worst, you can always go and get your MBA and use that as a springboard onto the operating side of the table 😊.

You can't really make a wrong choice when deciding between being an operator and an investor, but I do think you can make a suboptimal one based on your ultimate aspiration. 

The number one piece of advice I have for folks interested in pursuing venture capital is to take the time to think about why they want to become a VC. Do they want to be a builder or an investor? 

With the benefit of hindsight, my recommendation is only to pursue being a venture capitalist early on in your career if you want to be an investor. 

If you want to be a builder long term and pursue VC as a path into that world, you'll get broad exposure, but you'll likely be frustrated with how little impact you make on companies (the extent to which VCs make a tangible impact on companies in general is a debate for another post). 

Instead, join a high-growth company. Optimize more for growth and sitting next to brilliant people. Optimize less for the particulars of your role. You can always get into VC down the road. Operating experience will only make you a better, more empathetic, and more credible investor.  

If you want to be an investor and want VC to be your asset class of choice, then great! You won’t make as much money as being a PE bro, but the companies you work with are about 1000x cooler, and you may even be able to invest in some companies that change the world. 

As with most things in life, there isn't one ideal path. The path you choose matters less than what you do while on it. 

But before deciding to jump into the VC rabbit hole, think about what you really want. 

Do you want to be a builder or an investor?

The answer will inform a lot. 

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Venture has a Sexiness Problem

I have been talking about venture capital a lot recently.

A lot of my fellow MBA students are interested in getting into the industry so they are curious to hear my perspective on it. I also get frequently asked if I plan to return to the industry after I graduate. Anytime I find myself having the same conversation over and over again I have found it helpful to codify my thoughts in a blog post and so hopefully this can be a good resource to anyone interested in the industry as well as serving to get some of my feelings out of my head and into the open. Before we embark, I should say that this represents my personal thoughts and beliefs and could all be subject to change. I have spent a bit over 2-years working in the venture world and at least double that devouring everything I can about the space. My view is not ironclad, but I do feel strongly that my perspective is warranted and that it is my responsibility to share it.

I believe in Venture Capital

I believe in venture capital. I did three years ago when I was desperately working my ass off to try to find a way into the industry and I still do today. I believe that, when done right, venture is perhaps the greatest job in the world. You get to spend time supporting and working alongside entrepreneurs who are trying to change the world. It is extremely intellectually stimulating and it is an incredible job for anyone who loves to learn about new industries and technologies. When done right, it is one of the few true positive-sum professions where you only win when everyone else wins. When done right, incentives are aligned and I truly believe it is an example of a job where you can do well for yourself while also making a meaningful impact on the world.

Venture capital is great.

But it isn't perfect. And it's imperfections are exacerbated by structural and cultural issues that are pervasive within the industry. You'll notice when I was describing all the great parts of venture, there was a phrase I repeated a few times.

"When done right"

Therein lies the rub. Venture capital is an extremely compelling career path for a myriad of different reasons, but only when it is done right. What does it mean to "do venture right" and how does one do it wrong?

Venture done right

Doing venture the right way means optimizing for long-term incentive alignment between investors and entrepreneurs. It means focusing on maintaining relationships versus nickel and diming your way to a deal structure that optimizes for middling outcomes. Developing true conviction around the entrepreneurs you invest in and not simply throwing spaghetti at the wall to see what sticks. Venture done right is about paying it forward because you know that your associate or the VP at one of your portfolio companies could be a founder or co-investor in the future. It means getting in the trenches alongside founders and supporting them however is most helpful instead of touting the benefits of a promising-sounding, but inevitably spurious "platform" model. Venture done right is about evaluating people on the basis of their ideas, drive, and accomplishments and not because they pattern match to what a successful entrepreneur or investor looks like. It means being able to have tough conversations and maintaining respect for the entrepreneurial journey. It means not assuming you know all the answers and avoiding becoming cynical after the 10th time you've heard a similar pitch because that just might be the time it finally works out.

Notice there are no parameters around fund size or industry or geography. There are a lot of ways to be successful doing venture, but if you look towards the upper echelon of funds that consistently outperform the rest of the asset class, I believe you will see that the "how" they go about the job contains many of the aspects I outlined above even if their specific strategies and focus areas may differ.

To answer the questions I get about my post-graduate plans, I would absolutely go back into venture. But only if I had the opportunity to learn from a master of the craft at a firm that did venture the “right way.”

Unfortunately, I have come to believe that those kinds of opportunities in the industry are relatively few and far between.

Venture’s sexiness problem

So why don't more firms do venture the "right way"?

I think it is largely because VC has a sexiness problem. It is so attractive from the outside looking in that structural issues are created or allowed to fester. There are a massive amount of young, smart, driven people who are fiercely interested in breaking into the industry. And as I outlined above, I believe that is for good reason! Let’s look at why this causes some problems.

On the demand side, you have an overabundance of smart, driven people trying to get into the industry. On the supply side, you have funds that only hire based on fund cycles every few years and are generally top-heavy with more senior-level investors than mid-level investors and more mid-level investors than junior level investors. These combine to make it incredibly difficult to go straight into the industry. This isn’t necessarily a bad thing in and of itself. There are plenty of industries that are competitive. But a commonality between many of them is that they treat people like crap.

Look at fashion, sports, media, and investment banking. All have way more demand to get into the industry than supply. And they treat people (especially junior-level people) not especially well. Why? Because they can. Because if you don’t like it, there are plenty of people riding the bench who would be more than happy to take your place.

I am not saying that everyone in VC gets treated like crap. Quite the opposite in fact with the collaborative nature of the industry generally leading to a kind of friendly “coop-etition” between firms. But speaking from my personal experience, as well as those of my friends in the industry, there is a dearth of mentorship, advancement, and opportunity for growth. And that is allowed to occur systematically because there are so many people who want to get into the industry. There just isn’t an explicit reason to give up time and resources to nurture talent when there will always be someone waiting in the wings to take their place. I’d argue that there very much are long-term reasons to develop junior-level folks, but this is an industry where feedback loops are long and most firms aren’t trying to build a legacy.

The recent sheen of the venture capital world has some other unintended consequences. When an industry seems too good to be true it has a nasty habit of attracting snake oil salesmen. I think venture capital is especially susceptible to this given the industry’s long feedback loops and general opacity. From the outside looking in, it is hard to tell the good VCs from the bad ones. Their branding and social media presences look largely the same. They use the same buzzwords and both talk about their love of innovation and working with entrepreneurs. There is a scorecard in the form of returns (which I believe largely accrue to investors who do venture the right way), but you have to be an insider before you really get a sense of where the leaderboard stands. Sophisticated LPs and entrepreneurs can smell the difference a mile away, but many other investors, entrepreneurs, and corporations don’t have nearly as discerning of an eye. This isn’t just a coastal tech hub phenomenon either. Go to any up-and-coming tech ecosystem and you will find it run by old white guys who last worked at a “startup” when AOL came on a disk.

Should you go into VC?

That depends. I am increasingly led to believe that, on average, venture is a good but not great junior-level job, a poor mid-level career, and a fantastic senior-level calling.

Let me explain what I mean by that. I think the value you will get from working in the venture industry follows a barbell and is a function of time spent in the industry.

On one hand, you have venture as a junior-level job. Like it was for me. The reason I got into venture was not because I wanted to do venture until the day that I died, but because I wanted to be part of building companies that make an impact by solving important problems. That's my north star and it is what guides every decision I make in my career. I thought venture would be an excellent introduction to the world of tech entrepreneurship especially given my background with finance and investing. The type of startup that I could've joined given my skillset a few years ago as a financial or business analyst would have been at a very different stage of maturity than the kind of startup I could be part of now. And I would have only had one perspective on how a company gets built instead of having at least somewhat of a view across the landscape. That was my thesis at the time and I think it largely came to fruition. I feel 1,000x more equipped to start or join an entrepreneurial endeavor than I was a couple of years ago. If you want an industry to go into for a couple of years where you can learn about a ton of different companies and sectors and get broad exposure to the technology industry, venture is a pretty sweet gig. In hindsight, I think I would have learned more by joining a successful startup during its hyper-growth phase, but finding a firm poised for that kind of growth is easier said than done and going the venture route was probably the next best thing.

Where the industry is challenged is from a mid-level career perspective. As mentioned above, opportunity for organic growth within firms is pretty tough to come by. You will see or meet people who are flying up the ladder at their firms, but that is because they belong to the minority of firms that do venture the “right way”. Who are willing to think long-term and know that developing talent in-house leads to long-term competitive advantages whether that talent stays, goes to another fund, or starts their own company. That means that this mindset is not pervasive in the majority of firms in the industry. It is a tough, tough climb to scale the venture capital ladder purely on the investor side of things. It can be done, but usually, it takes stops and starts and a decent amount of bouncing out to move up. Maybe my perspective is somewhat jaded, but from where I sat for two years, I’d say my experience was much more emblematic of other junior-level investors in the industry than not. There are better and much easier ways to make money and build a career than working in the venture capital industry. If that is your primary motivator, I think you will find yourself frustrated.

Where I think venture really shines is as a senior-level calling. I think being a GP or partner at a venture firm is probably one of the coolest professional pursuits in the world. If you truly view it as your life’s great work to support entrepreneurs and help enable them to build incredible business, boy is the payoff big. I think the investors who do venture capital the right way largely fall into this camp. They don’t do it for the financial rewards or the perceived pseudo-celebrity status. They do it because they are obsessed with the craft of building companies. Yes, venture capital is an asset class, but I believe it is, and will always be, much more art than science. It truly is an apprenticeship craft and if it is your life calling, becoming a master artisan is an incredibly compelling path.

What can be done?

So what can be done about these problems?

To would-be VCs: Be picky. Don’t settle for the first offer you are able to get. Really dig in and try to understand whether a firm does venture the right way. Do your due diligence on them just as you would if you were evaluating a company. You may think it is worth it to take any job just to get a toe hold in a competitive industry, but I can assure you it is better to bide your time for the right opportunity. If you are determined to make it as a VC the barriers ARE surmountable. What may not be is the damage done by going to the wrong kind of firm. As with any kind of apprenticeship, if you are learning the craft from practitioners who don’t do it the right way, then you are learning to read from the blind.

To founders: Be skeptical. Don’t sign your life away to the first term sheet you get. Venture capital is a long-term commitment and it is worth taking the extra time to do your due diligence on your investors. Talk to the references they provide you and then talk to the ones they don’t. Dig into the portfolio companies they cut ties with or who they didn’t follow on with. If you get a glowing review from an entrepreneur who a firm didn’t continue to invest in that is a strong endorsement indeed. Avoid incubators, studios, and accelerators who over promise and under deliver. There are firms in each category that are fantastic, but there are significantly more who don’t add nearly the amount of value necessary to justify the commitment (in time, equity, and energy). Be wary of anytime the public sector tries to start getting involved with directly funding or spurring innovation. It can be a recipe for misaligned incentives and bureaucratic optimization of all the wrong things.

Despite all of its issues, I still believe that venture capital holds incredible promise. Promise to really enable significant good in this world. In some ways, it shines so bright that it casts shadows, but that doesn’t mean it isn’t a massive net positive on our society. If after reading this, you still want to pursue venture capital, great! You should go for it with eyes wide open to all of its greatness as well as all of its failings. When you are a wildly successful VC, I hope you take the long-view and do it the right way.

Venture capital is not the best career in the world anymore.

But if people focus on doing it the right way, by optimizing for long-term incentive alignment and taking the long-term perspective on nurturing talent, I believe it can be once again.

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How will technology change venture capital over the next 20 years?

For an industry that is ostensibly predicated on being at the cutting edge of technology, venture capital itself has been relatively slow to adopt new technologies. Sure, VCs themselves are all highly technically literate and drive the newest Teslas and have all the latest fitness trackers, but the profession itself looks largely the way it did 20 years ago. Why is that? Will things really be that different for the industry in the next 20 years?

A Tortoise Industry whose job it is to bet on Hares

So why has venture been slow to adopt new technologies? There are a bunch of reasons for this but I will share some of the few that I find most compelling. First and foremost, venture capital is, and likely always will be, a relationship-driven industry. It’s about people and networks. Not about technological supremacy. And that makes sense. It’s hard for there to be a meaningful ROI on technology as a venture capital investor today. Maybe there are some cost efficiencies that can be realized by adopting middle and back-office platforms, but it’s important to remember where VCs make their money. They don’t do it on driving incremental efficiencies. They do it on having outsized, power-law outcomes on companies they get into early enough to have meaningful ownership at the end of the day. It’s especially interesting to compare venture capital to public market investing where technology adoption has been so prevalent. Why the difference? Because in public market investing the margins really do matter. When you are trying to beat benchmarks in a hyper-competitive market with clean and readily-available information, efficiencies generated by technological adoption really do make a world of difference. Since venture capital operates in much murkier waters, there just hasn’t been the same push to roll out the technology.

Another reason that VCs don’t leverage technology nearly as much as they invest in it, is that it is difficult to do so in the spaces they are playing. So much information is obfuscated in private markets. It is really difficult to build any sort of quantitative models or use technology to evaluate companies or entrepreneurs. As the old saying goes “crap in, crap out”. Without access to high-quality information, your options are to A) invest in a niche space where information is relatively available or B) hire an army of pencil pushers to do data clean up and acquisition. It’s really tough. There are just so many different variables you need to take into account. And even if you get all the data you could ever want on some companies, comparing them is extremely difficult at the early stages of a company’s lifecycle. Any VC that tells you they are data-driven today really just means that they have a convoluted grading system that they shoehorn their companies into to justify their own personal biases.

How Technology Could Change Venture Capital

Is venture capital doomed to always be behind the tech curve? I don’t think so. I wouldn’t say that venture capital will ever get to the point of the technological adoption of private markets, but there is a lot of room for improvement. Here are a few ideas on where we could see technology impact venture capital over the coming decades.

Artificial Intelligence

Remember how difficult I said it was to build predictive models for private businesses? There is a good chance that AI changes that in the next 20 years. Why is it so difficult to use analytics in venture? Massive amounts of unstructured data with tons of variables. What is AI good at finding patterns in? Massive amounts of unstructured data with tons of variables. AI has the potential to completely change how companies are evaluated and talent is identified. The biggest challenge will be feeding artificial intelligence models the right kind of data when that data isn’t easily found. If someone can solve the data question, then watch out. If I were you I would keep my eyes on the companies who are building out proprietary flows of that data. Companies like Carta have access to the inner workings of a variety of private companies. What are the chances they leverage that at some point?

Portfolio Management

Portfolio management is tough. Giving all of your companies the attention they need just doesn’t scale well. Technology will continue to decouple aspects of portfolio and fund management from VCs. Automated data collection, quarterly updates, portfolio rebalancing, reserve allocation planning, capital calls, and more. We are in the early innings of this game but there are already multiple players looking to take this work out of investors’ hands. More mature industries like Private Equity have had providers handling much of this work for decades. I expect that we will see more and more venture shops “outsource” many aspects of fund and portfolio management to technology so they can focus on their highest leverage activities.

Fundraising

Within the last few years, there has been a veritable explosion in technology solutions aimed at startup fundraising. I expect that in the future technology will provide solutions for GP fundraising as well. Fundraising is a highly manual process that has not evolved in decades. There is an opportunity here for technology to streamline the space. Matchmaking between VCs raising funds and investors is a highly manual process mostly driven by word of mouth and pounding-the-pavement networking. Technologies that made this process easier would be valuable for both GPs and LPs. Perhaps the place where technology could make the biggest impact is for first-time funds. Believe it or not, the median first-time fund will generally outperform the median fund managed by a more experienced investor. First-time funds however are notoriously hard to raise, especially for people who don’t have an ivy league or tech royalty pedigree. What would an angel list look like for first-time fund managers?

Deal Execution

Every investor knows the difficulty that comes with getting a deal across the finish line. Last-minute negotiations and ever-growing red-line version lists can make the last 5% of a deal as painstaking as the first 95%. Automation has the potential to bring massive efficiencies to these processes in the future. Collaborative documents instead of back and forth redlined word docs. Optimized automatic negotiations based on each party’s preferences. E-Signatures and E-Notaries. These technologies will have sweeping impacts across much of the legal profession and transactions of any kind and they will make a meaningful difference in the way that venture capital deals are executed.

These are a few of my ideas about how technology will change the world of venture capital. Let me know your ideas in the comments below or on twitter. Until next time!

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The Pillars of Innovation

What is innovation?

It’s a word that gets bandied about a lot, especially in the world of venture capital, but what does it actually mean?

The dictionary defines “Innovation” as a new method, idea, product, etc. (snarky side comment: What the heck does “etc.” mean in this context. I am dying to know)

Here’s the way I see it.

There are two broad categories of innovations.

1. You can improve on something else that exists (Sustaining Innovations)

2. You can create something new (Disruptive Innovations)

That’s it.

Every new method, idea, product or etc. fits into one of those two buckets. Is one better than the other? What are the differences?

Better Mousetraps

Innovations on something that already exists are sometimes derided by tech thought leaders. They are thought of as inferior to disruptive innovations. Somehow less pure.

In the words of Peter Theil, “We wanted flying cars, instead, we got 140 characters.” (You could argue in some ways Twitter is more of a new innovation than flying cars, but the message is pretty clear here).

I definitely appreciate Theil’s perspective, but the reality is, that the vast majority of companies are building better mousetraps. There is a LOT of value to be unlocked by simply making things work better.

Less friction.

Quicker.

Slicker interface.

People pay big money for these things. And why not? At the end of the day, an increase in efficiency is really an increase in available time, the one resource we can’t get any more of.

Innovations improving on something else should not be derided. They create massive value in both venture capital and within the economy at large.

Superhuman. Zoom. Evernote. The list goes on.

There are plenty of fantastic companies that have been built by making people’s life easier. The downside is that when user experience is your selling point, you are setting the bar you need to meet extremely high.

You can’t just be a bit better than incumbents, you need to blow them out of the water.

My favorite opportunities for improvement innovations are in large, slow-moving incumbent industries that have been slow to adopt new technologies. It is absolutely unreal the amount of our economy that still runs on faxes/paper/on-site databases/etc. If you can get people to change their ways (not a trivial task), these types of markets provide the opportunity to unlock tremendous value since the status quo is so poor.

New and Shiny

Disruptive innovations are the creation of something out of nothing. These are the Zero to One type of products or services that provide you with a new experience that you have never had before. These are the products that make Mr. Theil happy as a clam (where the heck does that phrase come from? A quick Google search for those of you curious).

They are the truly great innovations that create massive step-function improvements over the ways things used to be done.

At their core, disruptive innovations provide someone with an experience they weren’t able to have before. The name of the game is access. Increasing access to a good or service that a user has never had before.

One of my favorite examples is Venmo.

Venmo isn’t a simple improvement on a cash-based society, it is an enabling force function on people’s ability to forgo cash on a daily basis. It provided access to something (P2P payments) that people hadn’t had before.

Disruptive innovations are often the platforms that sustaining innovations are built on top of.

Ok, disruptive innovations sound great right? Easier said than done, unfortunately.

Disruptive innovations by definition are harder to build. There is no frame of reference by which they can be compared. No well-worn path that they can walk. They need to be generated a priori.

And then somehow transformed from an idea into a tangible product.

This is no easy feat. Even for the biggest and most well-resourced companies in the world.

Recent innovations in the smartphone market are largely predicated on increased camera capabilities. Amazon hasn’t developed anything truly game-changing since AWS.

Disruptive innovations are, in a sense, purer. They are the creation of something from nothing. Order from chaos.

But boy, are they tough acts to follow. It is nearly impossible to successfully build and deploy one disruptive innovation, much less a string of them.

One Innovation, Two Innovation. Red Innovation, Blue Innovation.

Ok so sustaining innovations improve an existing experience and disruptive innovations provide access to something totally new.

The reason this framework is important to understand is that it defines how you look at every company or opportunity.

Sustaining innovations are, at their core, user experience plays. When evaluating a sustaining innovation business, you will want to really dig in to understand exactly how the product or service works to understand if it is a meaningful enough improvement in performance to motivate a buying decision or investment of time from a customer.

Disruptive innovations are centered around access. What access to a good or experience do they provide that people never would have been able to experience previously? I like thinking of questions of access through the Jobs to be done framework. What job does the product or service provide users? How did they achieve that job before? If the innovation isn’t an improvement on an existing good or service, what product (or products) is it replacing? Understanding the system within which the innovative product is connected will help you to determine whether it is worthwhile or not.

Ok.

I have a confession to make. This post is somewhat of a false dichotomy. I made it sound like you either had to be one innovation or the other. Sustaining or disruptive. Improving on something new or creating something from nothing.

The truth is not nearly so black or white.

The truth is that the best innovations, the most impressive, most valuable, most world-changing technologies…

They have a little bit of both pillars of innovation within them.

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So You Want to be a Venture Capitalist? Required reading for any aspiring VC

Books are one of the best ways to learn about a topic.

Art. Science. Finance. History.

A book allows you to absorb in a few hours what it may have taken an author decades to learn.

In the past, I have talked about how I always try to be reading two books at any given time, one fantasy book and one non-fiction book.

In fantasy, I exercise my imagination.

In non-fiction, I exercise just about everything else.

It will come as no surprise to most of you that a significant portion of the non-fiction part of that experience takes the form of books directly, or at least adjacently, related to the world of venture capital. I regularly get asked for resources about the industry. I thought a good place to start would be some of my favorite books on (or around) the topic. I should note that this is in no way an exhaustive list, this is simply the books that have had the biggest impact on me, my career, and the way I think about venture capital.

Without further ado, my list of must-read VC books (Amazon affiliate links included):

The Hard Thing About Hard Things by Ben Horowitz

The book that started it all. During the summer after my junior year of college, I had the opportunity to intern at a venture capital firm. I knew I wanted to be an investor, but that was about as specific as I could get. On the first day of work that summer, my boss handed me a list of books to read (many of which are included below). The first book I read was The Hard Thing About Hard Things by Ben Horowitz. The rest, as they say, was history. This was the book that first kindled my love of all things venture capital, tech, and entrepreneurship. It is a fascinating look into the ups and downs (and downs and more downs and somehow eventually even greater ups?!) of a dot-com era startup. Come for the lessons on leadership and entrepreneurship, stay for the rap lyrics and no holds barred commentary on the startup world. An amazing opportunity to learn from a successful technology entrepreneur who just happened to found one of the world’s most successful venture capital firms as his second act. Casual.

Creative Capital by Spencer E. Ante

If you want to learn about something, what better place to start than its beginnings? Creative capital is the story of one man, Gorges Doriot, and the monumental impact he had on the world by founding what we know of today as the venture capital industry. Doriot was an unassuming Frenchman academic who answered his adopted country’s call-to-arms by serving in World War II. After the war, he went on to found the first venture capital firm. An enjoyable and enlightening book that takes you back to the metaphorical primordial ooze of what turned into the modern venture capital industry.

Venture Deals by Brad Feld and Jason Mendelson

The definitive must-read for anyone interested in learning about the nuts and bolts of how venture capital deals are structured. Brad Feld and Jason Mendelson are legendary venture capitalists in their own right, but their contribution to the industry in the form of Venture Deals is pretty tough to beat. If you are a VC, read it. If you want to be a VC, read it. If you are an entrepreneur trying to raise venture capital, read it twice. Venture Deals walks you through the ins and outs of deal terms and gives you a baseline understanding of what you can expect when hand shakes have been made and the lawyers start putting pen to paper. If you are going to be spending any time in or around this industry, you will be a step behind if you haven’t read Venture Deals.

Zero to One by Peter Thiel and Blake Masters

Zero to One is the ultimate place to start understanding the world view of one of the most successful technologists and investors in history. The book is about how to think differently and build truly innovative products the world needs, instead of simply inventing better and better mousetraps. In some circles, Peter Thiel may be derided at worst and thought cliche at best, but I for one couldn’t have a higher opinion of his technological and ideological contributions. Zero to One is one of those books you are either going to love or you are going to hate. You will either be inspired by Thiel’s unique perspective or you will find yourself diametrically opposed to it. And in some ways, that is precisely the point.

The Lean Startup by Eric Ries

Another seminal book in the world of technology and venture capital. If you have had any exposure to modern technology development or startup building, chances are that you have come across at least some of the ideas contained in this book. Reis’ ideas have become so pervasive in the world of startups that they have become completely core to how companies are built. There are no such things as “lean startups” simply because nearly all high growth technology companies are built using the lean methodology today. The book is not without its share of critics COUGHkeith raboisCOUGH, but it is a pillar of the modern technology ecosystem. At the end of the day, The Lean Startup is about tightening feedback loops, pushing decisions as close to problems as possible, and getting customer input before you start building something they don’t want. Which business couldn’t use some of those strategies?

Powerful by Patty McCord

You want to learn how to build a world-class organization? You start by reading this book. Patty McCord was the architect behind the culture of one of the world’s most effective and impactful modern companies. Patty joined Netflix during its early days after previously working at Reed Hastings's prior startup. She was instrumental in creating a culture that favored candor, transparency, and trust over the normal HR jibber-jabber of engagement, hierarchy, and performance plans. Her key insight: People want to work on something important while being surrounded by really smart people and they want to be treated like adults. Get that wrong and all the hand-holding, all-staff retreats, and ping pong tables in the world won’t save you. An incredible book that guides you through thinking about building a company culture that is fit to excel in the dynamism of the modern world. Be warned though, if you are reading this while finding yourself stuck at a company with its head in the sand, you will find yourself in for a world of frustration.

Creativity, Inc. by Ed Catmull and Amy Wallace

The story of Pixar. Does anything else need to be said? Creativity, Inc. takes you behind the curtain of one of the most exciting and fascinating companies ever. It gives you an inside look at the trials (so. many. trials.) and tribulations of one of the most beloved companies in the world. If you read it for the heartwarming stories about how to capture the imagination, you won’t be disappointed, but this book is so, so much more. Creativity, Inc. isn’t just the history of Pixar, it is a guidebook on how to create a company where innovation always comes first. Where envelopes are pushed and conflict is handled directly out in the open instead of through anonymous feedback inboxes. The placement of Creativity, Inc. next to Powerful is no coincidence. You will see many of the same themes about transparency, treating people like adults, and holding employees to the highest possible standard echoed across both books. It’s almost like they might be on to something…

Elon Musk by Ashlee Vance

Hero or villain. Sympathetic or despicable. Genius or idiot. The modern titan that is Elon Musk refuses to be defined by easily traced lines. You really have a chance to know the man you need to be one of the few he lets into his inner circle. For the rest of us, we read this fantastic biography by Ashlee Vance. Halfway through the book, I wanted nothing more than to be Elon. By the end of the book, I wanted nothing less. Elon Musk’s life is one that defies all attempts at shallow categorization and in some ways this book reads more like an action novel than a biography. If you want to become an expert at building innovative companies, you absolutely must take the time to read about the life of the world’s most innovative company builder.

Loonshots by Safi Bahcall

One of my favorite books that I have read in recent years and one that, if you know me, I have probably recommended to you multiple times. Safi Bahcall excellently examines why it is that some companies are able to innovate and others aren’t. Why some are able to nurture the crazy ideas that change the world and others bury their most promising talent under paperwork and bureaucracy. So many non-fiction books follow the trope of “Here is my idea and here are 27 chapters that include slightly differing examples.” Loonshots is among the minority that truly break the mold and I found myself on the edge of my seat throughout. Throughout the book, Bahcall examines some of the very companies and people discussed on this very list and why their companies were able to succeed where competitors didn’t. I’ll give you a hint: It’s all structure.

Have you read any of these books? Are there any other must-reads for the next generation of venture capitalist? Let me know in the comments or on Twitter.

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Gaming will Eat the World

In 2011, Marc Andreessen wrote one of the seminal thought pieces in the history of Venture Capital. Why Software is Eating the World basically was the rubberstamp that the age of the internet had truly arrived. Going back and reading it today, it almost reads as quaint. The idea that every company is a tech company is so widely accepted today, that it is hard to believe that under a decade ago this was a novel insight.

I am not Marc Andreessen. And I never will be.

He is one of the forefathers of the internet in addition to being the founder of one of the world’s top venture capital firms. So far, the only things I ever founded are this blog and the school of fashion consisting entirely of Polos + Gym Shorts.

I don’t expect this post to ever reach the same rarified air that his did. But I do believe one day a post on the same topic might.

And that is because, though gaming isn’t eating the world today,

I believe that it one day will.

eHype

Getting excited about gaming and esports (not eSports, I have gotten flammed for that before so watch out) is not exactly a revelation these days. Every investor and their great grandmother’s aunt Judithe is paying attention to the space. The larger gaming market is going to do about $152B in revenue this year and that figure is expected to grow to $180B by 2021. Compare that to the traditional sports market which is worth in the neighborhood of $500B (but has about a 4,000-year head start) and you can start to see why people like Judithe are putting her retirement money into a Croatian GS: GO team. More people watch videogame streams any given day than tune in to the NFL. It is a massive and quickly growing industry.

All that is great, but I’m not telling you anything new.

I don’t want to talk about how gaming is the future of entertainment.

I want to talk about how gaming is the future of EVERYTHING.

I believe that gaming and esports will become so much more than simply entertainment. As I pointed out above,it is an interesting opportunity worth investing in, in and of itself, but honestly, I think people are sleeping on just how big gaming really will be.

You had one Job

You know me. Big Future of Work guy. Gaming is a big reason for that. Gaming is going to create countless jobs in the years to come.

There will be the obvious jobs that have been part of the industry for some time now. Game development/marketing/ etc.

Then there will be the modern gaming jobs.

Esports athletes. Tournament casters. Esport reporters and news personalities. Video game streamers. These are already here and not only can you make a pretty penny from them, but they are the new aspirational careers for Gen Z.

What I am really intrigued by is the next wave of jobs. New technologies like Tokenization create the potential for creatives to buy and sell their digital wares within the economies of games themselves. Selling skins for characters and items is nothing new, that’s how many game companies make the bulk of their revenue off of free-to-play games (the most expensive CS:GO skin was sold for over $60K). A16Z had a really interesting podcast recently on the future of gaming monetization. New strategies to incent early adopters, creatives, and entrepreneurs could allow people to support themselves off of creating and selling digital goods. Imagine Etsy but for digital goods to be displayed on digital avatars. This is the way the world is going and it will be a massive opportunity for gamers and creatives alike to build income through jobs that have never existed before. And the best part is that they could do it from anywhere on earth.

Gamify me, Captain

Not only will gaming grow in new and unexpected ways, but I predict that it will start to permeate other aspects of our world. Many of the cutting edge technologies of our day like AI and high-end processors started off in the gaming world, it is not a stretch to believe that other aspects of gaming will make the jump into other industry verticals.

Today we are currently experiencing the consumerization of the enterprise stack with technologies like Slack and Zoom. Tomorrow we will see the gamification of the enterprise stack.

Generally, when people hear the term ‘gamification’ they think of stickers or leader boards. Really what gamification is is the creation of compelling incentive structures that re-frame something mundane in a compelling way. This could mean taking advantage of people’s competitive nature to try to perform better against their coworkers. Or adding a layer of abstraction to create user enjoyment where there wasn’t one before. There are already examples of teams being effectively trained through gamified modules instead of the traditional boring training seminars. I expect that this will only continue to grow and touch more aspects of people’s jobs. It is much less expensive to keep a current employee than to try to get a new one. Gamification can be powerful tools borrowed from the world of gaming to drive increased retention and employee engagement.

Of course, work is just one of many aspects where we will see a growing influence of gamification. Relationships, education, and healthcare are just a few of the aspects of our life that would stand to benefit from utilizing some of the tools and strategies developed by the world of gaming. One of the trends that I am most excited to watch is the improving UX of work. The adage that “work is supposed to feel like work” is quickly growing extinct. Today billion-dollar companies are being built by removing friction from work and simply making things like collaboration and communication not suck. I believe that tomorrow we will see billion dollar companies built to make work actually fun.

Here Today, Game Tomorrow

If you aren’t paying attention to the world of gaming and esports, you are sleeping at the wheel. Gaming is no longer for kids or the counter culture. It is a multi-billion dollar industry that is not only here to stay, but one that will continue to seep into more and more aspects of our everyday life.

My focus is not on the business as it is today, but on all that it could become in the future.

See you at the Auction House.

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Things are Looping Up

Life is about loops.

Sometimes it is easy to make the assumption that life is a series of discrete events and choices. We believe that life is like a stone skipping crisply across the surface of a lake. There is a singular point of contact and then we are just along for the ride until the next point of contact.

This assumption is incorrect.

Life is about loops. The iterative processes and actions that define our life, behavior, and businesses.

Things are rarely as simple as action and reaction. This may occur in science experiments that take place in a closed system. Life is more often a series of interconnected systems where the outcomes have some level of impact upon the next impact.

Think about driving. An action that seems like second nature to most of us is actually a complex loop involving multiple neural and physical systems. You are only able to drive because of the short feedback loops between these systems. Moving the steering wheel causes the car to change direction. This feedback is relatively quick and direct which allows your brain to either A) keep turning or B) stop turning.

A key lesson to be learned from driving and applied widely across our personal and professional lives is that a key to operating a system successfully is to keep feedback loops short and direct.

Shoulda, woulda, OODA

A lot of the modern thinking around loops and systems started by Air Force Colonel John Boyd. Boyd developed a concept called the OODA loop that is still widely utilized in military and business strategy today. It is a decision-making framework whereby decisions are made by constantly cycling through the loop of Observe Orient Decide Act. In aerial dogfighting between fighter jets, the fastest or most heavily armored plane is not who wins, it is the pilot who can react most quickly to changes in circumstances. Utilizing the OODA loop methodology, pilots can cycle through decision trees extremely quickly. Less focus is placed on making the correct decision as is focused on making decisions quickly, examining the results, re-orientating accordingly, and then taking action again.

Sound familiar?

OODA loops and the underlying theory that agility overcomes superior resources serve as the bedrock for modern business strategy and technological development. (For a great podcast and loops about in business, check out this episode of Invest Like The Best)

Why startups win

Agile software development and the lean startup movement are two examples of this kind of thinking. In both cases, the lengths of feedback loops are minimized and decision making is pushed as close to the customer as possible. Resources are front-loaded and experiments are run and re-run so that teams can get feedback quickly and make adjustments as necessary.

This is why startups can go toe to toe against massive incumbents and win. Usually, success isn't a case of simply throwing resources at a problem. Startups beat incumbents because they can act and react so much quicker. By the time that a large incumbent has gotten the ship turned in the right direction, the startup already has such a large headstart that it has captured the hearts and minds of the consumer.

Issues occur when feedback loops are too long. A prime example of this is diet and exercise. We all know eating healthy and exercising is good for us. So why don’t more of us do it? The answer is that the feedback loops are long with these activities. You may not see results from your effort for weeks or months. It is easy to get discouraged while the immediate gratification of Grandma’s chocolate cake is immediately available.

Now, this is a massive issue for my industry.

Why the long pace?

Venture Capital is notorious for having extremely long feedback loops. Those startups that are successful enough to have a positive outcome will often spend 5 to 10 years getting there. And this trend is only elongating as companies are staying private for longer. As such, it will take an EXTREMELY long time to figure out whether your decision to invest in one company or another was the right one. Because the feedback loops are so long, it makes it almost impossible to alter your strategy and adjust.

So how do you deal with these long feedback loops? That is the challenge. Here are some ideas I have come up with.

1) Focus on building a repeatable process

Ahh the classic Erik Berg Process suggestion. You knew it was coming. I’m a big process guy. What can I say? When feedback loops are long, the importance of having a good, repeatable process is magnified. Notice what I said. Simply having a process isn’t enough. First, it has to be a good process. Having a bad process is worse than having no process at all because it will likely either reinforce poor decisions or give you false-confidence about your decisions. Second, it has to be a repeatable process. Your perfect process will do you no good unless it is flexible enough to be applied across different opportunities. It also will do you no good if the process is so cumbersome and painful that you struggle to get other stakeholders, entrepreneurs in my case, to get through it. Having a bad process in venture opens you up for MASSIVE issues. You may find yourself with a due diligence process that is so painfully slow and cumbersome, you aren’t flexible enough to be opportunistic on good deals and, even worse, you may experience adverse selection bias as the best entrepreneurs are unwilling to put up with jumping through your hoops.

What does that good process look like in Venture? Unfortunately, there isn’t a one-size-fits-all solution. What works with one segment or geography may not work for another. But it is something that you should spend significant time and energy being thoughtful about. Don’t do things just to tick a box on your checklist, be purposeful and make sure every step in your process drives tangible value for either you or the entrepreneur (ideally both).

2) Document your decisions

With long feedback loops, it is almost impossible to remember the set of facts or thoughts around a decision months or years later. This makes documentation of the utmost importance. If you won’t know whether a decision was successful or not until years later, you need to have enough documentation to be able to come back to it and review what was going through your mind at the time and how that mapped against how things eventually would play out. Were your assumptions correct? Did you anticipate all the exogenous threats? Was your understanding of internal dynamics accurate in hindsight?

You won’t be able to ask yourself the right questions, much less answer them, unless you are documenting decisions effectively. Note that this does NOT mean that you need to write a novel recounting the most minute aspects of every decision. Remember what I said about having an efficient process? This is definitely a case where more does not equal better. How does the saying go? “It was too hard to write you a letter on one page so I wrote it on four.” As in all other aspects of communication, decision documentation should strive for clarity and conciseness. It is better to write one accurate and poignant page than it is to write twelve that are not. (This is also true in blogging and something that I am desperately trying to get better at.)

3) Audit yourself

Hey, remember when I said that it was important to document your decisions? Believe it or not, that is very much predicated on your willingness to go back and actually look back at your decisions. It is amazing how few people and firms do this. More often the self-analysis only goes as far as: “Decision right = skill. Decision wrong = bad luck”.

Have the courage to look in the mirror at all your mistakes. Go back and try to understand where your head was at the time. Use your clear and concise documentation to figure out where you went wrong and how you can react better in the future. The reasons people don’t do this are two-fold. One, people are lazy and this takes time. Sorry, you are just going to have to suck this one up if you ever want to improve. Two, people don’t like admitting they were at fault for their errors. This intellectual humility is what sets the best from the rest.

4) Measure using an intermittent proxy

If you won’t know if something is successful for a long time, try to find indicators with which to orientate yourself even before something is fully baked. Look at the exercise example I used previously. If you focus on how you look in the mirror, it will be extremely hard to stay motivated. If you instead focus on the energy you feel after a workout or the weights/reps you were able to lift, you will have a much easier time staying motivated. You will see progress all along the way instead of only once you reach your destination.

William at Frontline Ventures has an excellent article detailing how he and the Frontline team utilized the intermittent proxy measure of future financings to measure a company’s success. It isn’t a perfect measure (just ask WeWork), but it was good enough to give a directional indication of whether they were on the same track or not. Based on the data they gathered, they realized that they were missing out on deals because their process was too slow. Accordingly, they adjusted their process to be more nimble so they wouldn’t continue to fall into this pitfall.

Staying in the Loop

Life is about loops.

Observe.

Orientate.

Decide.

Act.

Move nimbly and purposefully. Make sure to pick your head up often enough to adjust your direction as necessary. Design good processes that you can repeat scalably and effectively.

Remember: David beat Goliath.

Speed wins and to be fast you need to be able to design tight feedback loops.

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Entrepreneur's Table

For something that captures so many headlines and national attention, there sure isn’t a ton of entertainment revolving around startups or entrepreneurship. For someone as obsessed with the topic as I am, you have to get a bit creative.

I’ve found my favorite content about entrepreneurship in an unexpected place.

Cooking.

Specifically shows like Chef’s Table that do a deep dive into a chef’s history and the journey that brought them to build the world-class restaurants they preside over today. I believe there is a lot that we can learn about entrepreneurship from cooking and from chefs that are at the top of their own game of creating something new.

Entrepreneur de Cuisine

I love the model for entrepreneurship that a kitchen provides.

In the kitchen, the head chef is the chief facilitator. He sets the tone. He designs the menu. He may even put the finishing touches on certain dishes, but if you peek into the top kitchens in the world, you will find that the chef spends little time doing much of the actual cooking itself. It simply isn’t possible in any restaurant with more than a few tables. Instead, there is a horde of more junior chefs and assistants that take care of all necessary aspects of creating a great dish.

The chef will orchestrate the incredibly complex process of coordinating multiple dishes so that everything comes out at exactly the same time. His role is vital, but it is not sufficient for success. Even the best chef in the world will fail if he doesn’t have a team that can execute and works well together.

A founder is not so different. Even with all the talent in the world and an amazing idea, entrepreneurship at any sort of meaningful scale is a team sport. If a leader doesn’t create an environment where their team can be successful, their venture will be as doomed as the most dysfunctional kitchen. My wife and I recently watched the movie Burnt, starring Bradley Cooper as a troubled chef working his way towards the redemption of his third Michelin star. Without spoiling too much, the main character only begins to attain success when he learns to trust the other chefs on his team and stops trying to do everything himself.

Founders take note. Your success will depend every bit as much on your ability to manage, lead, and create an environment where the best and brightest can flourish as it will on your talent, grit, or world-changing ideas.

If changing the world was easy, everyone would do it

Something that becomes abundantly clear for anyone who spends much time learning about the culinary arts is just how brutally difficult it is to build a restaurant that truly makes a significant impact. Chefs train their entire lives for a shot and every single successful chef will have their fair share of scars and near-death experiences.

The path to success is just so brutally difficult.

The hardest part of all?

You can never rest on your laurels. The second that you stop innovating, creating, and moving your craft forward, the world will pass you by. The thing I am most consistently amazed by while learning about the world’s greatest chefs is just how relentless their drive and passion is. They never give up and they never stop pushing the envelope forward. If they did, they would no longer be great. They are only able to do this by creating from a place of genuine Instinctual Originality.

These observations ring every bit as true in kitchens as they do in the hip co-working spaces or innovation centers that startups call home. Entrepreneurship isn’t easy. If it was, everyone would do it. It is a daily knife fight where if you let your guard down for one second, someone younger, faster, and hungrier will come along to replace you.

Companies need to constantly reinvent the wheel to stay relevant. It takes all the running you can do, just to keep in the same place.

Sears. Polaroid. Xerox. Blackberry. Nokia.

Each at some point was absolutely on top of the world.

And then they stopped moving their craft forward.

And the world passed them by.

Entrepreneurship for all

The last thing I love about examining entrepreneurship through the lens of cooking is that it expands the definition of what entrepreneurship could look like. In the startup tech world, I believe we too often paint entrepreneurship into this little box that we like to call “Venture Fundable”. Look, I will be the first to tell you that venture capital is not for everyone. To conflate a company’s funding mechanism with its identity is dangerous at worst and short-sighted at best. Just because the venture model is not right for someone or their business does not make them any less of an entrepreneur!

In a recent post, I called startups Churches of Entrepreneurship and claimed that the only real requirement for a company to be a startup is that the Spirit of Entrepreneurship resides within it.

Restaurants are a great example of the truth in that. At the highest level, a chef uses their restaurant to create things the world has never seen before. They utilize familiar ingredients and techniques bring something into being that is completely new.

If that isn’t entrepreneurship, I don’t know what is.

Acknowledging the entrepreneurship inherent in world-class cooking opens your eyes to see the myriad of other businesses and entrepreneurs that capture this same spirit. Just because a company doesn’t look like a startup doesn’t mean that it is any less entrepreneurial. Viewed through this lens I believe that the question must be asked of whether we are doing enough as investors. Is our current conception about how to build businesses broad enough? Maybe there are gaps out there? I have found myself increasingly fascinated by the accelerating trend of permanent capital and how it might be applied to the world of tech startups. If fund structures are a prime source for incentive misalignment, what happens when you get rid of them?

Anyways, these are questions for another day.

Founders, learn the lessons that chefs can teach.

Build a team that you can trust to get the job done.

Innovate by creating from a place of Instinctual Originality.

Acknowledge that there is more to entrepreneurship than twenty-somethings in thick-rimmed glasses and hoodies drinking nitro cold brew and discussing the finer points of C++.

And most of all…

Keep on cooking.

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The Score is 0-0

Reuters

I had the pleasure of watching the US women’s national team win the world cup today. It was an entertaining, if somewhat inevitable, match with the Dutch rarely looking threatening. The score was tied 0 - 0 at half-time before Team USA scored twice in the second half to defend their crown and walk away the victors.

Newspapers around the globe tomorrow will sing the team’s praises and tease out the insights and lessons from their performances over the past few weeks. For my part, the game reminded me of a recent quote and the powerful lesson it represents.

Petr Cech played goalkeeper for Arsenal for the past few years before retiring at the end of last season. A couple of months ago he did an AMA on the Arsenal subreddit and one of his responses has really stuck with me ever since.

When asked how he mentally resets after conceding a goal, Cech responded “In my head, every single second of the game the score is 0-0. I literally do the same process for 90 minutes all over again regardless of if we are winning or losing. I just concentrate on my job. That’s all I Do. Every. Single. Day.”

I love this attitude and think there is a lot to learn from it. People (myself included) too often let the cloud of recency bias hang over their actions. If the last time they tried something it was successful, they will think that this time they are invincible. If they were recently defeated, they will believe they’ll never even have a chance.

The much better approach is to think of the score as 0-0. No matter what has happened before. Play as if it’s all tied up.

The USWNT was the most talented team at this year’s world cup. By a mile. Their greatest challenge was not defeating their opponents. It was playing like the score was 0-0 despite the fact that they were defending world champions.

Adopting this mindset is harder than it sounds. Unconscious biases are just that, unconscious. The greatest tool in your toolkit to fight against the power of recency bias is process. Develop the right process and you will be able to train your sights on that process, no matter what the score is.

Every. Single. Day.

This lesson is especially important in the world of investing. Investors are humans too, and just like all other humans are susceptible to recency bias. A recent successful trade can breed feelings of invincibility on all future trades. A startup with a young founder that flamed out can lead you to believe that all startups led by young entrepreneurs are doomed to fail.

Investors need to practice the mindset of thinking and acting as if the score is 0-0. Try to maintain your mind’s neutrality during both the highs and the lows.

In venture capital, this can often be especially tricky. Given the nature of technology startups, companies often require multiple rounds of funding in order to be successful. This means that recency bias rears its ugly head, not with some uncorrelated trade, but with prior funding rounds of the very same company you are currently considering for investment.

It is almost impossible to avoid letting a company’s past performance, actions, and outlook color the way you think about another investment. Some investors even claim that this inside access gives them superior signals by which they are able to make their decisions. And there is likely some truth to that. But there is also the danger of allowing past occurrences to obfuscate current decisions.

When evaluating an investment in a company, it is absolutely essential that you act as if the score is 0-0. Do everything you can to determine whether the company’s current attributes and trajectory warrant an investment based upon their own merits, irrespective of past funding rounds in which you may or may not have participated.

As in life, the best way to do this is to develop a process. And then stick to it.

Every. Single. Day.

Oh.

AND GO TEAM USA BACK TO BACK WORLD CHAMPIONS BABY!!!!

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The Power of Reading Two Books: Truthspeakers and Toy Story

Photo by Mikhail Pavstyuk on Unsplash

I love to read. It is my true happy place. No matter where I am or what I am doing, I know zen is only as far away as my current book.

I am in the habit of always reading two books at any given time, one fiction and one non-fiction. I think to neglect either does you a huge disservice. I truly believe that your imagination is like a muscle and that reading fiction is one of the best ways to exercise that muscle. And maybe it is just my learning style, but I learn through stories and for me, a good non-fiction story is the absolute best way to consume and learn new information. I generally read my fiction book before bed every night and I listen to my non-fiction book throughout the day on runs, my commute, or while doing the dishes.

The act of reading, just in and of itself, is rewarding, relaxing, and helps me expand my intellectual world. The beauty of reading two books at once is that, every so often, they align in the most magical sort of ways.

The fiction series I am currently reading is the Wheel of Time and I can honestly say that it is among my favorite fantasy series ever. The world, the magic, and most of all, the characters. All serve to paint an incredibly rich and compelling world across the course of 14 books (just started book 10, The Crossroads of Twilight).

What starts as a seemingly generic fantasy trope (a group of teenagers from a small village has greatness thrust upon them by a mysterious woman and embark on an epic quest where the fate of the world hangs in the balance) turns into so much more across the various twists and turns of the series. One such surprise is the Seanchan, who are the returning descendants of an army sent to a far off land thousands of years ago. They are as culturally unique as they are powerful and they have many interesting customs.

One custom that I found especially compelling was the role of the Soe’feia or Truthspeaker in the Seanchan’s imperial order. A Truthspeaker is a servant who is the trusted adviser of the Empress and the Imperial family. Despite their role as a servant, their purpose is to speak truth to their masters, no matter how harsh or unwelcome. Multiple times throughout the story characters are shocked by the brutal honesty displayed by these Truthspeakers to the most powerful of Seanchan royalty.

We all need Truthspeakers in our lives.

People who can hold a mirror up to ourselves. Even the ugly parts that we don’t like admitting we have.

I am lucky to have Truthspeakers in my life through friends and family, which is important because I need to be called on my own bullshit. A LOT. (my wife is seriously a saint I have no idea how she puts up with me).

Just as important to having Truthspeakers in our personal lives is to have someone who can tell it to you like it really is in our professional lives. This can be a boss, co-worker, or mentor, but it is vitally important to have someone that can help you see around the corners of your own bias and emotion.

How do you do this on a company level?

Enter book two.

The non-fiction book I am currently reading is Creativity, Inc. by Ed Catmull, the president of Pixar and Disney Animation. Creativity, Inc takes readers insides the halls of Pixar throughout its, at equal times, tumultuous and triumphant history. The book’s focus is not simply on presenting the facts that occurred over that time but exploring what sets Pixar apart as an organization and how other companies can break down similar barriers to creativity and success.

One such secret to success for Pixar has been the Pixar Braintrust, the company’s ace team of directors, operators, and creatives that are brought in to fix problems when they inevitably arise as part of the production for each movie. The only membership requirements for the Braintrust are a knack for storytelling and a willingness to be candid with one another. Ed view’s his primary role, not as a leader of this group, but as more of a facilitator whose focus is on maintaining the integrity and honesty of its process. Some of the absolute key changes made to the movies we have come to know and love over the years like Woody being a lovable cowboy to WALL-E being saved by EVE were hatched during braintrust meetings.

I love this concept and found the parallels between Pixar’s Braintrust and the Seanchan’s Truthspeakers simply too delightful to not write a post on them.

In the world of startups and venture capital, being an entrepreneur can feel isolating. I believe it is absolutely essential to any company’s success to develop a culture where the CEO has Truthspeakers around them that they can be relied upon to tell it like it really is. As a venture capitalist, I see my role as doing just that.

I haven’t run a company before.

I haven’t developed a world-changing technology.

But if I can do just one thing to add value to a company, I hope it is that I can speak with truth and candor when an entrepreneur needs it most.

Institutional Contrarianism: On Everest, Mozart, and Instinctual Originality

(Nirmal Purja/AP)

You’ve probably all seen this picture. The 2019 Mount Everest summit season has become famous for a high amount of deaths and reports of long lines of climbers waiting to complete the final summit.

Too often investors act like these climbers. Instead, they should act like Mozart. In this post, I will tell you why.

Institutional Contrarianism: When climbing the world’s highest mountain enters the mainstream

The summit of Mount Everest was first reached in 1953 by Edmund Hillary and Tenzing Norgay. This success came almost 70 years after it was first suggested the feat might even be possible. Unsurprisingly, the summit of Mount Everest captured the world’s collective imagination in a way that few endeavors had before, or since.

And there was no putting the genie back in the bottle.

A line of hundreds of climbers waiting on the summit is what happens when climbing the world’s highest mountain enters the mainstream. What was once the domain of a chosen few lofty dreamers has become the world of Fred from El Paso. And Mo from two neighborhoods over. Now, that is maybe a little bit of an exaggeration, but a Sherpa guide has reached the summit of the mountain 24 times (the most a non-Sherpa has reached the summit is American David Hahn who has reached the summit 15 times).

Venture capital bears a striking resemblance to Everest. Everyone claims to be trying to operate on the edge of what is possible, but when everyone is swimming against the current, is anyone really?

Contrary is the biggest buzz word in venture capital today. No, the irony is not lost on me. The cult of contrarianism was seemingly started by Peter Thiel and his oft-posed question of “what is something you believe that those around you disbelieve?” In his book Zero to One, Thiel encouraged people to come up with fundamental insights about the world by looking at it through a different lens than others. I am a big fan of this way of thinking.

But it has warped into something different altogether. It has become the very evil it sought to destroy.

It has institutionalized.

At some point, everyone trying so hard to go against the crowd just becomes a herd moving in the opposite direction.

Everyone pays lip service to being a contrarian, but how much of them actually do it? From what I have observed, some. But not many. This Institutional Contrarianism becomes the very thing it claims to oppose. There are few leaders in a new space, but many followers. People are interested in latching on to the work others have done and seek exposure to hot spaces without necessarily having a strong perspective on them.

How do you break out of the trap of Institutional Contrarianism? How do you strive for true originality?

We look to great creators of the past for answers.

Create like Mozart: Tapping into the power of Instinctual Originality

A book I have learned a lot from is Impro by Keith Johnstone. This book is ostensibly about improvisation in theater but actually has much more far-ranging lessons. You may recognize it from the annals of FinTwit where it is oft-cited for its teachings on physical presence and interpersonal positioning. These lessons are great, but I have found that it has just as much, if not more, to teach us about learning and thinking.

Recently while reading I came across a section on originality that I think offers some striking insights towards solving our problem of Institutional Contrarianism.

Johnstone on originality in theater:

Anyone can run an avant-garde theatre group; you just get the actors to lie naked in heaps or outstare the audience, or move in extreme slow motion, or whatever the fashion is. But the real avant-garde aren't imitating what other people are doing, or what they did forty years ago; they're solving the problems that need solving, like how to get a popular theatre with some worthwhile content, and they may not look avant-garde at all!

Similar to the avant-garde movement, venture capital investors too often find themselves pursuing what is fashionable instead of what is truly differentiated. By definition, a space cannot at the same time be fashionable and contrarian. One need only look at any tech news site to see the dynamics of fashion trends at works. Entire sectors and technologies fluctuate between golden child one moment and untouchable the next. Blockchain. VR. AI. Greentech. All have had, or are having, their moment in the sun. All likewise have at some point been cast aside.

The crux of the issue is that you cannot generate abnormal returns in any asset class by acting the same way as everyone else. When a “contrarian” trend becomes the fashion and everyone starts flooding into the space, you can guarantee that valuations will skyrocket even as the number of quality opportunities diminishes.

As Johnstone says above, truly original ideas will often hide behind a sheen of the mundane. In hindsight, it is easy to craft a narrative around why companies like Uber and Airbnb were so transformative, but at the time they seemed anything but. Plenty of incredibly smart, successful investors passed on some of the greatest investments of the past decade (for proof just check twitter any time a tech company goes public).

So how can we tap into this true originality of thought? When asked where his ideas come from, Wolfgang Amadeus Mozart replied:

Why my productions take from my hand that particular form and style that makes them mozartish, and different from the works of other composers, is probably owing to the same cause which renders my nose so large or so aquiline, or in short, makes it Mozart's, and different from those of other people. For I really do not study or aim at any originality

Therein lies the secret. One cannot be original by trying to be original. Striving to be contrarian leads you to follow the popular fashions of the day and will inevitably lead to mediocrity. The path to true originality in life and business can only be found by accepting yourself and leaning into the things that make you unique and different. I call this Instinctual Originality.

Ok, Erik, great. Just emulate Mozart. No problem.

It is not as hard as it sounds.

First, accept who you are. All your faults and all your greatness. Be aware of them and honest with yourself about them.

Next, ignore the mainstream. Easier said than done, but possible all the same. Don’t buy the hype. Always ask why and act from principles and fundamental thinking.

Finally, create from a place of Instinctual Originality. Originality is not some external mountaintop that we can scale, it is inherently inside each of us. Let it flow from you. Don’t pursue it. Listen to the voice inside of you. There is a reason that our best ideas often come in the shower or on a run. We already know the answers.

We just need to listen.

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Confessions of an Anxious VC

Photo by Rob Curran on Unsplash

My whole life I have suffered from social anxiety.

It’s something that would surprise a lot of people. I am a social extrovert. I am often the loudest (sometimes obnoxiously so) and most outgoing person in most rooms. I get my energy from interacting with others. And yet those same situations cause me anxiety.

Talk about a catch 22.

I have had social anxiety ever since I was a kid. It used to be bad. Outside of a few best friends, I wasn’t able to spend time in social settings with friends outside of work. The first time I hung out in an unstructured group setting (not a birthday party or a sports practice etc.) was my freshman year of high school.

The weird thing was that it was never the act of being social or the event itself. It was the anticipation of being in a social setting that caused the anxiety ahead of time. Once I got there, I was fine. In fact, I was more than fine. Being social is when I am at my best.

Luckily, I was able to get help. My parents had the resources to pay for me to see a psychologist when I was in middle school. Vocalizing my internal thoughts made a huge difference. Often my own self-talk sounded laughable when said out-loud. By talking about my feelings with an objective third party, I was slowly able to shift the way I talked with myself. I am so grateful I had the opportunity to get help and it breaks my heart that asking for help with mental health still seems to be so stigmatized by our society. I can honestly say that I would not be where I am today without it. Healthy, happy, and (mostly) well-adjusted.

But that doesn’t mean I still don’t get anxious sometimes. Anyone who has dealt with anxiety will understand what I am talking about. The anxiety never really goes away. You just learn to deal with it.

For me, the best strategy was “faking it till I made it”. Every time I threw myself into a social setting I was anxious about, the little voice in my head telling me I wasn’t good enough whispered a little bit more quietly. I acted like I was confident and before long I started to actually feel confident. Over time that little voice went away almost completely.

But it still crops its head up every now and again.

Especially when it comes to networking.

I don’t know what it is, but networking has always given me a spot of trouble. I guess it is just the fact that I generally don’t know anyone at all. True or not, I have this idea in my head that everyone else knows each other and it is easy to get intimidated by that.

Now, you can see why this is a problem.

As a venture capital investor, networking is a big part of my job.

Cultivating a network of relationships with entrepreneurs and other investors is one of the keys to success in this career. It’s not always easy, but I have come up with a few strategies that help me and that may help other people.

Learn someone’s story

The biggest improvement in my ability to network came after re-framing the entire activity. A former colleague of mine was always getting drinks with people after work or meeting up with people in his network for lunch. Most of these connections were people he had met briefly or only a couple of times previously. I had no idea how he did it. When I finally asked him how he was able to network so effectively his response was to tell me that he just liked “hearing people’s story.” As soon as I heard that it was like the clouds parted. I love meeting new people and learning about their story. Ever since I reframed networking as getting to hear people’s stories, instead of focusing on how to present my own, it has gotten exponentially easier and more fun!

An inch wide and a mile deep

Another big key has been focusing on quality over quantity when it came to social connections. I would get overwhelmed by feeling like I would never be able to talk to everyone at an event. So now I don’t even try. I focus on trying to make a smaller amount of deeper connections. I would rather have two 20-minute conversations than eight 5-minute conversations. Aside from just taking the pressure off, I also think this is just a much more effective way to network. If you have a superficial conversation with someone for 5-minutes, you will get lost in the noise. Talk to someone for 20-minutes about the harmonica or the frequency of lightning strikes around the globe and you can be sure that you will stand out.

Go with a friend

When in doubt, guilt-trip a buddy to going with you. Just knowing that you know at least 1 person in a crowd makes a ton of difference. Even if you split up once you get there, it is comforting to know you have a security blanket of someone you already know to talk to in case you need it. And if the event sucks, at least you have someone to laugh about it with.

Nobody cares what you say

This may sound a little depressing at first, but I actually think it is really empowering. The beauty of being in a social setting where you don’t know anyone is just that, nobody knows you. If you say something stupid or put your foot in your mouth, guess what? Chances are that you never have to see those people again if you don’t want to. Maybe you aren’t quite as prolific in putting your foot in your mouth as I am, but the logic even works for boring superficial conversations. Don’t stress about making an impact on every person you talk to. See point number 2 above. If you aren’t jiving someone and you just can’t get them to bite, don’t stress. They won’t remember.

**For the record, I think this tip has a ton of applications outside of networking, especially when it comes to creating content online. People are too afraid of what other people will think about what they say. The truth is, if you say something dumb (like I have many times), no one will care (unless you say something really, really dumb or offensive). On the flip side, make some interesting points and people will take notice. Minimum downside. Maximum upside.

Pick a color, any color

This is a fun one that I picked up from a podcast. If you are anxious about a networking event, pick a color. When you get to the event, talk to everyone there who is wearing that color. It’s that simple. I don’t know why, but for some reason having a mission when you walk into an even (talk to everyone wearing green) really helps. I enjoy this one so much I even went as far as to buy 6-sided dice on Amazon that have different colors on each side. Before any networking event, I roll the die and try to talk to everyone wearing whatever that color is. I don’t know why this one works, but it does. Give it a try.

Go against the grain

I picked this one up from Tim Ferris. When you get to an event, look where everyone is focused. It may be the food table or a celebrity whose attention everyone is trying to get. Ok now see that group focus? Head in the exact opposite direction. It is tough to stand out in a crowd. Give yourself the best possible opportunity you can by going against the grain and doing stuff other people aren’t. This means going to the more esoteric info sessions. It means doing the weirder activities. If you are doing things differently than everyone else, people will take notice. And even better, you will see the other people who are doing the same. Those are the people you want to talk with.

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Hopefully this post is as helpful for you to read as it is for me to write. Mental health is hard. Talking about it makes it less so.

As with most things, overcoming anxiety is a slow and painful process.

Each step feels like you aren’t making any progress.

It’s only when you look back that you see how far you’ve come.

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Why Brushing your Teeth is the Secret to Success in Life and Startups

Brushing your teeth is the secret to being successful in life and entrepreneurship. In this post, I am going to tell you why.

Brushing your teeth is not difficult. It is something we all do. But how many people do it the right way? It’s recommended that you brush your teeth twice a day, every day. There is proper form and improper form. I am sure some kinds of toothpaste are better than others, but admittedly, it can be difficult distinguishing which toothpastes are the best given that each and every one is recommended by 9 out of 10 dentists (I hope I never come across the 10th dentist. Must be a terribly negative person).

The key to dental health is consistency. You need to put in consistent effort day in and day out. Brushing your teeth for an hour at a time will not allow you to skip brushing your teeth for the next month.

Now, as much as I appreciate the importance of dental hygiene, this isn’t really a post about brushing your teeth. This is a post about life and business, two areas where we all too often brush for an hour once a month.

The key to success in life is consistent application of effort. This is true for everything from relationships and startups, to exercise and reading. Very rarely will you find yourself in situations where a single herculean effort is all that stands between success and failure. Much more often, slow and steady really does win the race.

When I was working at Carlyle the head of my team had a favorite phrase, “Do your day job.” It means taking care of the fundamentals of your role and making sure that you excel on the little things. Because if you don’t, it tends to be a slippery slope.

I am a big Broncos fan and our newest coach, Vic Fangio, put it well in his introductory press conference. When asked to explain his famous “death by inches” mantra he said:

“If you're running a meeting, whether it be a team meeting, offense or defense meeting, a position coach meeting and a player walks in, say 30 seconds late, 45 seconds late -- that act in it of itself really has no impact on whether you're going to win or lose that week.

"But if you let it slide, the next day there's two or three guys late or it went from 30 seconds to two minutes. It causes an avalanche of problems. That's 'death by inches.'”

The little things matter. Showing up consistently and putting in the effort is what makes the difference between success and failure.

No place is this truer than with startups.

On the startup battlefield, wars are not won in a decisive moment. Startup successes are a culmination of years of executing on the little things and consistently making progress. In tech, that steady progress tends to grow exponentially. This fact is sometimes hard to see among twitter hype threads and Techcrunch headlines, but the saying “an overnight success, 10 years in the making” really does ring true.

Execution is so, so key. A VC I really respect once told me that he would take a team that can execute in a small market over a team that can’t in a big market every single day of the week. Execution really is what sets apart A+ teams from the rest, and in venture you need those A+ teams to get the outcomes that justify the whole model.

You can bet that this hyper-focus on execution is something that VCs pay attention to.

A great example of this is due diligence. Due diligence is a necessary, but slow, and sometimes painful, process for everyone involved. A secret of venture capital that not many may know is that how an entrepreneur conducts themselves during due diligence, is just as big of a signal about whether the startup will be successful as anything else. An entrepreneur that is organized, prompt, respectful, and who has a masterful understanding of the ins and outs of their business during due diligence will likely exhibit that same attention-to-detail and execution mastery when it comes to running their business. Entrepreneurs who are difficult to deal with and get easily frustrated or are dodgy about direct questions about the business are unknowingly flying a pretty big red flag for all investors involved.

So now that we have agreed that consistent effort is the key to success, what is the best way to go about applying that effort?

In the immortal words of Joel Embidd:

“Trust the process”

The best way that you can ensure that you are properly applying just the right amount of force and using the proper technique when brushing your way through life is to build a process and stick to it. Our culture is far too outcome oriented. We operate on a last-in-first-out basis and optimize based on the outcomes we see, even when those outcomes are often nothing more than luck. If you flip a coin 4 times and get tails every time, you would not conclude that a coin will always land on tails. And yet, far too often our personal and professional actions are the equivalent of flipping a coin once, and assuming that every other time we ever flip a coin we will get the same result.

I have had a big focus on process ever since reading the book Chop Wood, Carry Water by Joshua Medcalf. I can honestly say this book has had a bigger impact on my life than any other. The subtitle says it all, “How to fall in love with the process of becoming great.” I highly recommend this book to any looking to lead a more process-oriented life.

My advice for you:

Focus on doing the little things right.

Fall in love with the process of becoming great. If you are able to truly do this, the outcomes will take care of themselves.

Maintain consistent effort instead of bursts of hyperactivity.

Take care of things like your health, your body, your relationships, your spirituality, and your mindset that only need a little bit of time each day to maintain and yet, are all too often neglected. These are things that are vitally important to your success in life, and yet not one of these things can be maintained by brushing for an hour once a month.

And speaking of.

Brush daily with consistent application of effort.

You’ll be surprised where you end up.

A Game of Venture Loans

The premiere of the final season of Game of Thrones is tonight. I am sure it will not surprise you to learn that I am a massive fan. I have read the books and watched and rewatched the series. One of the major overarching themes of the show is the zero-sum competition all characters experience in Westeros.

In the game of thrones, you either win or you die.

At a much more benign level, we see this zero-sum phenomenon play out in our world too. One of the reasons I have never been particularly enamored with the public markets is that there is someone “on the other end” of every trade. What this means, is that if you are purchasing a stock, the person who is selling you that stock almost always expects it to go down. If the stock goes up, you win and they lose.

I love venture in part because it is not a zero-sum game. There isn’t anyone sitting on the other end of our “trade.” When done well, there is enough incentive alignment to ensure that no party is succeeding at the cost of anyone else. Investors in funds win when VCs win when entrepreneurs win (say that fast five times). Perfectly in balance, as all things should be <<insert Thanos meme here>> (speaking of Thanos, it’s kinda wild that GoT, Avengers, and Star Wars are all concluding in 2019. I am firmly aboard each respective hype train, but it will be a bit bummer when all is said and done).

The one area that this does not necessarily hold true is getting into a hot round. The dynamics are such that in venture, entrepreneurs are always trying to thread the needle between raising too little (short cash runway) and raising too much (dilution). This means that for a given company, at a given valuation, there is going to be a cap to the amount of money the entrepreneur is going to want to raise. For most entrepreneurs, the worry is getting enough dollars in the door to close out the round, but for the hottest deals with experienced entrepreneurs or in a sexy space, rounds can fill up quickly. This can lead to significant competition between investors trying to get into the round. While not as competitive as Stark vs Lannister, things can heat up pretty quickly.

I should note that I have only ever witnessed this competition second-hand. My experience so far has mostly been centered around investing in the Midwest where the focus is much more on getting enough money around the table than trying to elbow to the front of the line. The simple fact is that there are not nearly the same numbers of investors here as there are in a bay area or a New York. That is changing as more and more people start paying attention to the exciting things being built in cities like Columbus, Pittsburgh, Kansas City and more.

I am thrilled for this increased attention and I think that it will be hugely beneficial to the region as a whole.

My one hope is that midwestern investors can maintain the same collaborative nature that they have cultivated thus far.

Because zero-sum competition is not a ton of fun.

Just ask the Starks.

A Slice of Humble Pie

Photo by Irina on Unsplash

This may come as a shock to you, but I sometimes have a bit of an ego problem. Yes, yes, I know. Hard to believe the guy who likes to hear himself talk so much he puts it into written word and blasts it off to the interwebs on a weekly basis has an ego problem.

Point is, I think I am awesome.

And I think that this is generally a good thing. But sometimes it is a bad thing.

Following?

I have a lot of self-confidence. I truly believe that I can achieve anything I set my mind to. I am someone that likes to throw himself head first into whatever roadblocks or hurdles life puts in my way. I am a big believer in the idea that if you don’t like something that is going on in your life, stop making excuses for it and take the necessary steps to change it.

I think this confidence is good. But sometimes it’s bad.

Sometimes I can get a little bit ahead of my skiis and fall down too much on the side of “better to ask for forgiveness than permission.” This approach works well in some settings, and significantly less so in others. One of my biggest weaknesses, my tendency to de-value the accomplishments of others, stems directly from this overconfidence and the related insecurities it can cause.

Another way that this confidence can sometimes manifest itself is through eagerness to take on more. I am supremely confident in my ability to upskill and do what I need to take on more and more, but sometimes this can be at odds with my choice of career.

Venture capital is not a fire-from-the-hip industry. Or at least, I believe that it is not when done well.

VC is an apprenticeship industry. It takes time to learn the craft. Sometimes that is hard for me to remember. I want to do more and take on more responsibility and have opinions on every company and every sector. But I have been doing this for less than a year. And I have a lot still to learn.

This week I got a reminder of that after hearing more experienced investors than myself talk about board governance. What a huge responsibility it is and all the perils that responsibility entails if its gravity is not appreciated.

After hearing about their trials and tribulations on various boards throughout their career, it really struck me how much more I have to learn.

I am so excited to be in this industry.

I love working with entrepreneurs and helping them build great companies.

But it is important to keep in mind that I don’t know everything. That this industry is a craft and like all crafts it requires reps and experience before you can become a master. Rome was not built with enthusiasm alone.

I write this post not because I am discouraged. Quite the opposite actually.

When I think about how relatively inexperienced I am and how much I still have to learn, I am not demoralized.

I am not daunted.

I am not intimidated or frustrated.

Instead, I am excited to get back to work and keep learning. To keep beating on my craft.

I think that is a pretty good sign.

The Monkey Trap of the Mind

Photo by Go Sourav on Unsplash

I am currently reading Robert Pirsig’s Zen and the Art of Motorcycle Maintenance. It is a fascinating book with many concepts that could be the inspirations for future blog posts. One such concept is the idea of Monkey Traps.

In colonial times, monkeys were trapped using a hollowed coconut connected to a stake in the ground. A hole was carved in the coconut that was just barely large enough for a monkey’s hand to fit into. Inside the coconut would be food for the monkey such as a banana or rice.

A monkey would come along, smell the food, and reach his hand into the coconut to grab it. Unwilling to let go of the food and unable to escape, the monkey would be trapped.

Too often we are trapped in monkey traps of our own making.

Our thoughts, actions, and opinions are held on to with a vice grip, no matter the consequences or existence of contradictory evidence. What’s worse, our culture shames those who change their mind as “flip-floppers.” We live in such a constantly changing world that I’d argue that questions should instead be asked of those whose views and opinions never change.

This adherence to our own cognitive biases is damaging and dangerous in all walks of life, but it can be especially fatal in venture capital.

Venture capital is concerned with the cutting edge of what is next. When you operate in this world, things change. Fast. To hold on to your preexisting beliefs in the face of overwhelming evidence is a surefire way to make mistakes like investing in the wrong company, or even worse, passing on investing in the right one. That’s why I so respect VCs who show a willingness to change their mind. A16z and their famous “strong opinions, loosely held” mantra comes to mind.

This is something I struggle with myself. I have blind spots due to my internal biases. I sometimes fall into the trap of minimizing others’ achievements to make myself feel better. I think if we are honest with ourselves, we all have moments when we fall into these monkey traps.

But that does not have to be our destiny.

The first step is to admit that we do these things. The second is to actively fight against them.

Cultivate a curious mind and embrace information that causes you to question your pre-existing beliefs. When the goal becomes learning and moving ever closer to the truth, then evidence that violates your held beliefs becomes something to be celebrated instead of shunned.

Maintain relationships with people who hold you accountable. The most important relationships in your life are the people who are able to call you our on your own bullshit (I know that I need a regular and steady dose of that).

I say all this as someone who often sucks at walking the walk. But I am working on it.

And I try to grow a little bit better every day.

My Investment Checklist

Photo by Jason Abdilla on Unsplash

I like checklists. You can do a lot with them. Help you stay on task. Focus your analysis. Remind yourself about things you might otherwise forget.

Checklists are great when looking at investments. Companies are complicated thing. Checklists can help you focus in on what is really important. I wanted to share my checklist of the things I look for when evaluating a startup.

Is this a hair on fire problem?

The first and the most important question. This one is not optional. If your startup is not solving a real problem for real people, you don’t stand much of a chance. It can’t be a nice to have. People don’t change their habits and make buying decisions for “nice to haves”. You either need to solve a top 2-3 problem your customer experiences every day or you need to create a product that is so incredibly compelling that using it literally creates tangible joy for your user. 95% of successful startups are in the game of solving problems. If your startup is in the 5% that creates unbridled joy in your customers, you can stop reading this article now, you’re probably fine.

The number one reason why startups die is because there is no market demand for their product. They aren’t solving a hair on fire problem. If the answer to this question is no: do not pass go, do not collect $200 dollars. I don’t care if your total addressable market is a million billion trillion dollars (which apparently every market is based upon pitch decks), if you aren’t solving a hair on fire problem for people, you are going to need to spend more time cooking on your product.

Does the founder fit the market?

Ahh the much-debated “founder-market fit” question. There is significant debate in the industry about just how important it is for a founder to have first-hand experience with the problem they are solving. I have written about my feelings in depth here. Suffice to say, I am a big believer. Entrepreneurship is hard. Like really, really, really hard. Like trying to write a blog about investment criteria while your wife is watching Season 5 of the Gilmore Girls (it should be easy to to ignore, but it is just so catchy. And I like this new Logan fellow, he is a much better fit for Rory than Dean or Jess.). But in all seriousness, entrepreneurship is brutally difficult and I want to be sure that an entrepreneur will stick with it when the night is cold and the chips are on the table. As much as I like to take founder-market fit into account, it is not a must for me. Experienced entrepreneurs can build excellent businesses. And people can fall in love with their customers’ problems without having experienced it themselves. BUT having a personal connection really helps. Founder-market fit is a nice-to-have, but not a must-have. It is something I always look for though.

Who is experiencing the problem?

Notice this question is not “how big is the market?”. Every single investment pitch I listen to talks about how epicly big their market is. Caring about big markets isn’t that helpful when every entrepreneur claims that every market is enormous. Furthermore, I think investors get too hung up on market size anyways. In venture capital, you are investing in the companies of tomorrow. Markets change a lot in 5-8 years, which is how long it takes a company to mature. Looking at the way that markets are today is less than helpful. What is much more important is to understand who the users/customers are for the product. If you truly understand who is going to use the product, you have a much deeper insight into how big this company can be. You can form an opinion about where the company is today and where it will be tomorrow. Understand the who, and you can develop a thesis on the where.

Is there an axehead here?

This is the most recent addition to the list. I unapologetically got this concept from Fred Wilson at USV (though I think it has its true epistemological roots in Thielism). This question is about a startup’s market entry strategy. An axehead strategy is when a startup enters a niche market (sharp edge of the axe), gains momentum, and then is able to carry that momentum into adjacent larger markets (the wedge of the ace). This along with our prior question on who the customers are is my substitute for “how big is the market?”. I am much more interested in a truly compelling product with a smart market-entry strategy, than a company playing in a market 2.5x the size of the world’s GDP (you laugh, but I have seen some wild assumptions in pitch decks before). Truly transformational startups often seem to conjure a brand new market out of thin air. This is how they do it.

Can this team execute?

Team, team, team, team. When you are an early stage investor, team is everything. Later stage investors may focus on other things, but team is the alpha and the omega of early stage investing. A strong team will be able to drive a mediocre idea to a decent outcome. A weak team will snatch defeat from the jaws of victory even with the best idea ever. At the early stage of a company the team is absolutely key. And this makes sense. Without momentum all you’ve got is the blood, sweat, and tears of your team. And with small teams, each person is responsible for a huge portion of the value of the company. The trick is to really understand if this is a team that can execute on their idea. A great way to do this is to spend time on site with the company and really get to know the ins and outs of the team. The best way to do this is to help fill gaps on the team with operators out of your own network that you know can get the job done. Either way answering the question of whether or not this is the right team is absolutely vital, especially at a company’s earliest stages.

It’s important to know that these items are always evolving. This is what I look for in investments today. I think it is good to memorialize that. If your company checks all these boxes, reach out.

I want to hear from you.

Why?

In our day and age there is a lot of airtime and energy spent on the “What”. What people are doing in their career. What is going on with the weather (hint: if its early March in Columbus it probably sucks). What movie won the Oscar. What outrageous remarks politicians made yesterday. What is important. What has its place, but I want to use this post to talk about the “Why”.

Because I think Why is very important.

Why is what gets you through the cold nights when your back is up against the wall. Why sets successful people apart from unsuccessful people. And Why sets world-changing people apart from successful people.

Why is important, but it is often overlooked.

Your Why is what motivates you. It’s the reason you are doing or acting the way you are. Too often we stop at the What and never ask about the Why.

There are two instances I see regularly where I think that people need to take some time to figure out their Why.

The first is people trying to break into venture capital. Believe my, I get it. It is a cool job. You don’t have to tell me twice. But there are a lot of cool jobs out there. I think people too often get sucked in by the glitz and glam of working with big name brands in cutting edge industries. As awesome as working in venture is, I can assure you that it is not as glamorous as it appears from the outside looking in (most things aren’t). Behind the scenes, things are complicated, messy, and every deal is closed with blood, sweat, and LOTS AND LOTS of paperwork. There are also better (and easier) ways to make money (especially in finance) if that is what motivates you.

The one thing I can tell you about getting in to venture is that it is hard. Trust me. Firms are often top-heavy and rarely hire outside of fund cycles. And there is always an abundance of people looking to get in to the industry. It can be done, but it isn’t easy to get a job, and once you do, it isn’t as glamorous as it looks on tv. Who is a good fit for VC?

If your Why is that you obsess over being a part of building things that will change the world, venture might be a fit for you.

If your Why is a deep desire to learn by constantly diving headlong into industries you didn’t even know existed the day before, venture might be a fit for you.

If your Why is building relationships with people doing exciting things and providing them with value without any strings attached or expectation of return, venture might be a fit for you.

If you want to work in a sexy industry and become rich, I’d look elsewhere.

The second area where I think the importance of Why is severely understated is when evaluating founders. I have talked about founder motivation before, but I really believe its importance cannot be overstated. If you thought venture capital was hard, wait until you see entrepreneurship. I like Brent Beshore’s description of entrepreneurship as a “daily knife fight”.

I, like many others, watched movies like The Social Network and read books about the great tech titans and thought to myself “hey I could do that.”

After almost a year working as a venture capital investor, my tune has changed to “hey with a great idea and a lot of super smart people around me, I could do that. But would I ever want to?”

I have seen first hand how hard company building is. And I sit in the privileged seats. I get to grab my 6-1/4” 7.5oz heavy duty utility knife (I spent a summer as a knife salesmen before college and still geek out about kitchen cutlery) and hop into the trenches every day. But when my day is done, I climb back out and get to set my knife in a regulation bamboo knife block (a well sheathed knife is a safe knife).

Entrepreneurs are not so lucky.

Their whole life is the trenches. If their company is successful, they could spend more than 10 years down there before they get a real breather. If they aren’t so lucky, their stay will likely be much shorter.

Kitchen cutlery brawl metaphors aside, building something out of nothing is never easy. It requires 100% commitment. There are going to be times where nothing is working. There are going to be times where things are working but a seemingly “better” opportunity comes along.

A lot of entrepreneurs like being entrepreneurs more than they like being founders.

They like the accolades and admiration more than the accountability and the brutal decisions.

They like the business cards more than the business.

Rare is the entrepreneur that is able to see it through to the finish line.

And every single one of them has a Why that gives them a fire to preserver. Whenever I meet an entrepreneur, I am looking for that Why. I want to see a founder starting a business because they think that if they don’t build this company, no one else will.

And the world needs this company too much to risk that happening.

Due Diligence: How Much is Too Much?

A big part of my job is due diligence. This is a fancy bit of jargon that gets thrown around a lot in finance. All it really means is doing research to back up whether things that someone has claimed about their company are true. My boss is fond of reminding us that in our job we need to “trust, but verify.” Due diligence is that verification.

Spend a little bit of time in venture capital and you quickly discover that the rigor of different firms’ due diligence processes vary greatly. Some firms spend an incredible amount of time and resources digging into every small detail of a company. Others run light processes that can be completed quickly. At Rev1, we have what I believe to be a relatively robust process compared to other investors at our stage.

This spectrum makes sense.

Firms with more specific sector-focuses are likely subject matter experts on the spaces they invest, cutting down on time necessary to get themselves up to speed.

Firms that invest across a series of stages will likely have leaner due diligence processes for their earliest investments and more in-depth processes for their later investments. The idea here being that the effort per dollar of investment remains relatively constant. More dollars. More effort.

There is no right answer on what is the perfect amount of due diligence.

But there are wrong answers.

Conducting no due diligence can’t be correct. But doing too much diligence makes your life miserable (and the entrepreneur’s life you are working with even more so).

When I was at Carlyle, one of our founders was fond of saying “you should never focus on conducting the most complete, perfect due diligence. By the time you will have completed it, the investment round will no longer be open and it won’t even matter because you will have talked yourself out of doing the deal anyways.”

I think there is a good amount of truth in this. Venture capital is a risky game. You will never be able to conduct such a thorough due diligence process that you are able to remove ALL the risk from a deal. If you were able to, they wouldn’t exactly be able to call it risk capital investing now would they?

So the correct amount of due diligence lies somewhere between 0 and 100. But where?

I have been thinking about this question a lot recently. The answer (as with most things in business) is that it depends. It depends on the characteristics of your firm and the demands of your stakeholders.

My views on the optimal amount of due diligence have recently been informed by my reading of Fooled By Randomness by Nassim Nicholas Taleb. This is an excellent book which I highly recommend. The author is a veteran options trader and a foremost expert on probability and randomness.

Two concepts from his book have especially informed my views on due diligence.

The first is the idea of satisficing.

Satisficing is a decision making strategy where someone analyzes different alternatives until they find one that reaches a minimum acceptable threshold. And then they stop. I believe this concept should also be applied to investment due diligence.

Your goal should be to reach the minimum required confidence threshold necessary for you to make an investment while expending the least amount of effort and resources necessary to get there. Any additional due diligence past that point is a waste of your, and the entrepreneur’s, time.

This minimum required confidence threshold will change from person to person and firm to firm, but I do think there is value in understanding the idea of satisficing to help avoid using unnecessary time and effort. As with many things in life, due diligence follows the law of diminishing marginal return. Each additional level of comfort you can reach in an investment requires exponentially more and more effort. This is why it is so important to reach your required confidence threshold and to go no further. Even pushing on just a little bit can require a colossal amount of energy.

Not only is too much due diligence a waste of time, money, and energy, but it could actually lead to some pretty large cognitive blind spots.

The second concept from the book that applies to due diligence are the negative side-effects of conducting too thorough of an analysis.

Too thorough of an analysis?

Yes, that is right. Taleb points out that one of the major cognitive biases exhibited by people is that their confidence in the likelihood of a given outcome increases linearly with the amount of effort they expend analyzing the chances of its outcome. It’s the effort people put in to an analysis more so than the analysis itself that tends to influence people’s expectations around an event.

People trick themselves into thinking that more analysis = more certainty, when nothing could be further from the truth. The wrong kind of analysis will be a red herring that increases your confidence in, without actually increasing the accuracy of your predictions.

Venture capital due diligence is an environment ripe for this sort of error. In early stage VC, the risks are so incredibly high for every company. Conducting an excessive amount of due diligence doesn’t change this fact. But it does make us feel better about the investment. This dislocation between the actual risks of an investment and someone’s perceived risks can lead to incorrect decision making and overconfidence in those decisions.

The true danger is not in the risks itself, but in conducting so much analysis that we convince ourselves that the risks no longer apply.

With the ideas of satisficing and the dangers of over-analysis in mind, I believe the best way to conduct due diligence is to seek the no. “Seeking the No” is a cool sounding phrase that I just made up on the spot. The concept is to figure out the few things that would immediately make you say no to an investment and try to validate whether they are true or not. Work backwards from biggest things that would immediately make you cut bait with the company. If you find out any of these hot button issues are true, you can pack up shop right then and there. No more analysis necessary.

Assuming you can attain some comfort that the company does not breach any of your “DO NOT INVEST” red flags, then you can proceed with seeing if they fit what you actually want to see in an investment. What exactly those attributes are that you should be looking for is a topic for another post, but following this strategy of seeking the no should help you focus your efforts on only the investments that truly warrant your time.

Venture capital due diligence is a tale of modern day Sisyphus. You will never be able to truly understand all the risks inherent in a business. Trying to do so wastes precious resources, while giving yourself a false sense of security. Conduct the minimum amount of due diligence necessary to reach either a no or a yes. You will thank yourself for it. And so will your entrepreneurs.

Pink Dragons, Serendipity Vehicles, and Mentos

When I was a kid one of my all time favorite things to do on friday nights was to have a movie night (who am I kidding, that is still one of my favorite things to do). My mom and I would go to Blockbuster to pick out a movie or two and then we would skip next store to Papa Murphy’s to pick up some pizza (I will contend till my dying breath Papa Murphy’s is by far the most underrated pizza on the planet. So good). One of the movies I distinctly remember watching during multiple movie nights was Serendipity The Pink Dragon. Serendipity was a pink sea dragon who lived on a magical island with all of her friends learning life lessons about friendship. I have no idea why we ever picked this particular movie out, but I do remember watching it more than once (to this day, my go to nickname for a Lapras in any Pokemon game is Serendipity).

I was reminded of Serendipity the pink dragon while listening to this interview from Sara Dietschy with Nik Sharma and David Perell. This episode is definitely worth listening to. They cover a lot of ground from influencer marketing to direct-to-consumer brands to their own stories and how they got where they are today. As part of this last part, they spoke about the role that serendipity had in each of their lives. They drew a line in the sand between serendipity and luck. Luck is something good that just happens to you. Serendipity is something good that happens to you because your hard work and patience put you in a position where it could happen to you. I love this distinction.

If you talk to anyone with a modicum of success in life, the vast majority can point to a handful of “lucky” events where they caught a break or were given a chance to take on a project they were woefully underqualified for. Rare, however, is the successful person who had this happen to them while watching Netflix and eating cheetos on a Thursday afternoon.

Luck is a factor in everyone’s story. What differs is how prepared people are to take advantage of the situation when the dice start rolling their way.

That is where Serendipity Vehicles come in.

Serendipity Vehicles are a concept coined by David Perell in this post. He talks about purposefully building structures that increase the likelihood of both serendipitous things happening to you as well as increasing the chances that you are able to take advantage of them when they occur. Serendipity vehicles can range from simple structures like attending a dinner party to more much more complex things like writing books.

This blog is one of my serendipity vehicles. Twitter is another. Both require relatively minimal, but consistent, effort to maintain. Both have lead to significant outsized opportunities far and above what I would’ve ever expected.

Now all of this talk of lifestyle design may sound complicated, but I think the most important thing is simply the way you approach it. I think the best way to think about designing your serendipity vehicles is to make yourself into a Mentos. Mentos are a type of spherical candy that are sold all across the world. To be perfectly honest, I think they are pretty average. What is not average are the explosive effects they have when combined with any sort of carbonated beverage (but especially Diet Coke). There is a whole lot of science behind why this happens, but the short of it is that even though Mentos looks like smooth spheres, on a microscopic level their surfaces are very rough. This increased surface area acts environments where bubbles can form, launching soda up into the air. The key is the surface area.

You can make your life resemble Mentos by increasing your surface area so you have a lot of different places where serendipity bubbles can form.

Say yes to thing even if they are outside your comfort zone.

Cultivate curiosity in a broad range of subjects and areas.

Go out of your way to go to new places and meet new people.

Jump at opportunities even if the timing is not always ideal.

Create excuses to talk with interesting people.

Provide value to people instead of just asks.

At the end of the day, your goal should be to have as many areas in your life where serendipity can form as possible The challenge is to recognize serendipity and then make sure you are able to take advantage of it.

This advice is equally true for both individuals and startups.

Well designed startups are a lot like giant serendipity vehicles. A lot of work goes into designing them so that they are in a position to shoot for the stars as soon as a serendipitous customer connection or technological development breaks their way. As a founder you need to balance the need to stay focused on what you are building with providing yourself as much surface area as possible in order to take advantage of connections with investors, talent, customers, etc.

I can’t tell you what the right balance for that is. You will need to figure that out for yourself. But I can tell you what the wrong balances are. There are two.

1) Ignoring any thought of the outside world to focus solely on your business.

2) Ignoring your business to focus solely on hoping something happens in the outside world.

Everything in between is fair game.

No matter where you land on the spectrum between focusing your time and energy on building your business and increasing your surface area to optimize for serendipity, there is one lever that you can pull to maximize your chances for success.

Burning responsibly.

Responsibly managing your burn rate as a startup is one of the most important things you do as a founder. Burn too fast and you won’t get enough at bats to have something serendipitous happen for your business, no matter how much you optimize for it.

As an individual and as a business, design your life so that you can take advantage of serendipity when it comes knocking at your door.

That is how you and your company achieve success.