Random quick notes about VC that I've come across this week. Someday I'll go back and aggregate them.
As a VC (or an investor writ-large)
- Finding the ripcord in a deal - If a deal has a bunch of yellow flags but no damning red flag: you need to be able to find the "ripcord" in the deal, the one thing you can point to (in front of the CIO, in front of the investment committee) that's makes the deal most unattractive in the clearest, most explainable way. E.g. "not a good fit for our portfolio for XYZ reasons" or "untenable valuation" may be better than "well it's a collection of yellow flags"
For evaluating VCs
- Ability to squeak into closed deals = green flag. Shows that you add true value to the start-up, and they're willing to let you in for good reasons.
- High-value VC qualities: gravitas, technical expertise, ability to sell next round of capital. Succinct way of putting what can make a VC firm great. From Ed Grefenstette, Venture Market Update - Capital Allocators with Ted Seides
- (Also authenticity, ability to admit mistakes, the trite "intellectual honesty")
- Massive venture firms' portfolio construction - from podcast above. Huge venture firms (like a16z) have to invest a little in hundreds of companies at early stage to buy the "option" for future rounds. Solo GPs are investing in the earliest stages and looking to build alongside founders (and respond to late night texts) -- they're more invested in the company's success. Good to think about both from allocator and start-up angle.
Portfolio Construction
- Mixing huge and emerging VCs - from the same podcast above. One strategy for venture allocation is to get one or two marquee names to build stability in the venture book (for ~30% of portfolio), then a handful of contrarian, orthogonal emerging managers / solo GPs to give diversification. Gives more credence why it's hard to be in the middle right now
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