Below is an excerpt from my quarterly LP update — reflecting on Moth Fund, VC, and me; circa Q1 2023:
People often say that you get more conservative as you get older. My main reflection from this past quarter is that I think it has less to do with age and more to do with collecting things worth conserving. This has been a recurring thought in my head ever since the start of 2023 when I held a first close on Moth Fund. So far I’ve invested in 5 companies, flown all over the country to host workshops and dinners in collaboration with other firms, and begun partnerships with many incredible investors who I feel lucky to call LPs.
One LP gave me a great piece of investing advice: “Don’t become conservative just because you’re managing other people’s money.” He meant this in terms of risk tolerance, not politics (I think). The main product I’m selling with a small fund is unique access. Investing conservatively (i.e. in the same things as everyone else) would squander my one unfair advantage as an emerging manager of a small fund.
Which is important because VC is all about unfair advantages. Arbitrages, if you will. Arbitrages take many forms: expertise, platform, services — but they all need to be paired with a network of exceptional people.
The network piece usually takes many, many years to build — which is the main reason why so few young people start funds. Raising a fund really only makes sense if you find yourself in the lucky position where you’re surrounded on all sides by people that make you feel utterly out of your depth and inspired to do something about it. Deciding to focus on serving them, as opposed to competing with them, is a legitimate choice — but one that carries with it many tradeoffs.
The plus side of venture is that it offers asymmetric upside — you get to pick which smart people (aka other investors) you want to collaborate with, become more like, and learn from. Because of this, investing can make you a very smart high-level thinker (if you take it seriously). The downside is that if you never build anything and put it out into the world, you probably won’t get much feedback. You’ll only understand how the world works at a theoretical level and founders will never fully respect you without your having gone through the experience of grinding on the same problem for years and/or eating glass in the name of the business.
Geoff Lewis has this funny clip where he says something to the effect of: “You [as a founder] should always choose investors who aren’t using their investment in your company as a means to self-actualize themself.” While the video was tongue-in-cheek, I actually think there’s quite a bit of truth to that. Investors who are trying to prove themselves on the basis of their investments alone are not the people you want to work with. The people you want to work with have already proven themselves to themselves, or at least are in the process of doing so in more areas than just a small subsection of a larger firm’s portfolio.
This is a big reason why I didn’t join a firm. Being a solo GP means I’ll have fundraising, firm-building, brand, and portfolio to point to as proof of what I can do. I’ve tried, failed, and finally come to terms with the fact that I’m not someone who can grow their confidence independently from their competence — so building something of my own to stand on is essential to making “self-actualization” strides of any kind.
Good founders get this — especially the ones going out to raise right now. Since the beginning of 2023, most of the founders I’ve been meeting with are at least on their second or third go at it. This is good from an early-stage investing standpoint, but will likely create problems down the line since young entrepreneurs are rightly delaying getting started making the shots on goal they’ll statistically need to see success in the future.
Meeting a high quantity of founders recently has also been a crash course in reaching an understanding of a person in as little time as possible. I’ve learned a lot about how to evaluate smart people by how they’ve evaluated me. Many of the investors that bet on me made it extremely explicit that they aren't betting on who I am now, but instead betting on the future version of me that sees success from sticking to this. Their assessment was made by looking at the speed of my career thus far and using this trajectory to project where I might land in the future.
Which is kind of the name of this game. VC is just relationships, operations, and good judgment — that’s it. A mentor of mine once said, “The best investors balance an analytical east coast mentality around finance and business with a west coast optimism about the future and interest in what opportunities can be unearthed at the cutting edge.” If you’ve always fancied yourself a diligent, Hermione-esque character, VC could be a great fit for you: taking notes, remembering small details about people, and asking good questions is the equivalent of acing the test. It’s a service job with extremely lagging success metrics, so how “good” you are gets measured by your associations with logos, how people talk about you, and every little touchpoint/interaction you and the evaluator share. Whether you call it self-actualization, confidence, or faith, venture’s lack of feedback loops means you need a healthy dose of it to stay sane.
Which is exactly what most newly-minted investors lack and why they fall prey to deploying capital conservatively as soon as they start managing other people’s money. Without tangible results under their belt to defend their judgment, early-career VCs default towards optimizing for defensibility. “I just think this person is amazing” is not a particularly compelling rationale to LPs as to why you wired someone a $100k check.
But “defensibility” is exactly what makes most of this industry a follower sport. As seen by the Cambrian explosion in generative AI this past quarter, most VCs don’t embody the contrarian characteristics that they prize so highly in founders. Instead, they spend most of their time chasing shiny mimetic objects. VC is a popularity contest to get through the door, only to find a complex web that it’s your job to map out, memorize, and weave yourself into. While earnestness, belief, and thinking in probabilities are what will make you well-liked as an early-stage VC, those same qualities don’t necessarily generate fund returns.
All of which is to say: my main learning from this past quarter is that venture capital is a long-term play. If you’re an investor, especially an early one (both stage-wise and career-wise), you probably shouldn’t know what most of their 1:1s and coffee chats are for. If you think the person you’re sitting across from is going to do something great, it’s your job to build a relationship with them for a very long time — all while staying on the hunt for opportunities to help each other expand the pie along the way. This special positive-sum mentality is relatively rare and unique to early-stage tech investing. So have fun with it: ask weird questions, endeavor to understand the person in front of you, and pay close attention as the future unfolds right in front of your eyes.
None of us know for sure what the coming quarter holds, but I do know that the quality of my decisions will be dictated by my discernment around whose advice to adopt and whose to discard. I tend to think that most advice is only helpful on topics that have a 30+ year half-life. If I want to make this fund stand out by being different to its core, thinking from first principles works well for everything else. I’ll even take that one step further — perhaps thinking from personal principles is even better.
I love your personal principles, I think it’s a great practice that I want to see more people take on! Here are mine: https://rishi.garden/principles