the rogue investor's guide to venture
the rogue investor's guide to venture
Q1.24 LP update excerpt
By all objective measures, being a venture capitalist is a weird job. The industry is really small (3.4k firms in the US as of 2023), really new (first firm founded in 1946), and largely a game of luck. For the solo capitalist, it’s mostly a sales job within a multi-sided marketplace; you sell your brain to LPs (your customer) and sell your money to founders (your users). Somewhere in there, you need to have made some smart-on-a-ten-year-time-horizon decisions.
I wrote this for a friend who’s new to investing independently and trying to figure out if it’s the right job for him. I don’t have an answer to that question, but what I do have is lots of notes and fresh reflections on what’s surprised me most about operating alone in this weird world of early-stage venture over the past year and a half:
1. If you derive satisfaction from refining a craft, don’t go into venture yet.
2. There are many ways of winning and the best one is entirely new.
3. Create coworkers.
4. You’re all alone with your thoughts.
5. A good fund brand bat signals your people and deters disbelievers.
1. If you derive satisfaction from refining a craft, don’t go into venture yet.
This filters out a ton of people if they’re honest with themselves. The people who should be early-stage investors get their gratification mostly from being of service to others and refining their thinking. They’re usually naturally patient, innately critical, and often a bit obsessive. Harnessing one’s intensity to make winning decisions about people, problems, and the future is the name of the game (and you should know which one of these you’re best at1).
Many people try out careers in venture and then wind up leaving after a year when it stops feeling novel and starts feeling like they’re floating in lonely limbo without any markers of success. That’s because the craft of venture is not for people who derive their satisfaction from external indicators of progress — it’s for people who find the development of their relationships and refinement of their internal model of the world to be motivation enough to keep going.
In the beginning, it’s best to derive your confidence from somewhere outside of your identity as an investor. Any honest person can’t hang their hat on being something they won’t know if they’re good at for five years without feeling like a fraud. It’s wiser to pivot into a venture career after becoming competent using more fast-paced feedback loops — generally from starting or working at a company. The lack of feedback loops in venture is much more tolerable if you have some confidence to stand on while staring into the ambiguous abyss of your investment decisions.
2. There are many ways of winning and the best one is entirely new.
Investing is not really a “job” with a standard set of day-to-day duties. It makes more sense if you think of venture as a business model that can work (aka make money) in many different ways. Here are five individual investor archetypes I’ve noticed can produce outsized returns in the early-stage venture game:
Philosopher: hangs one’s reputation on their predictions about the future
Hustler: simply outwork everyone else and are great at networking
Hawk: most competitive, gets a thrill out of the fight to win a deal
Friend: confidante and coach to founders, often founders’ first call
Celebrity: a person widely respected for their work/knowledge/skill
A good archetype for you is whichever one you can sustain the longest. A great archetype for you is one that no one else is doing and you have some sort of signal works. This is why inexperience can be such an asset in early-stage venture — you’re more differentiated at the start.
Some good advice I got: build your fund’s structure and strategy around allowing yourself to invest in whichever way you most enjoy and are naturally good at (admittedly, it will probably get harder and harder to stick to this as your fund scales). A general rule of thumb is that the earlier you invest, the more interested in people you should be. Examples: if you like being a friend to founders and want your fund to function as Switzerland (i.e. not compete with anyone), write small checks. If you like to fight and are naturally hawkish, it might make sense to set yourself up to try to lead rounds. If complex problems and futuristic theories are what get you excited, investing in series A companies that fit into where you see the world going could be quite gratifying. If for some reason you love living in spreadsheets, consider growth investing (and don’t follow literally any of my advice).
3. Create coworkers.
It’s literally impossible for you to do this job alone, but you also are doing it alone. Assigning labels to the abstract working relationships you form (even if the labels only exist in your head) helps quell loneliness by calibrating your expectations of the people around you. A breakdown in basic terms:
Peers — these are the people I started investing with and/or raised a fund alongside. We’re all “freshman” and ignorant in different ways. It’s safe to ask each other dumb questions without worrying about losing credibility.
Mentors — several years or a decade ahead of me. These are people I respect and can see bits of myself in. I don’t take their advice verbatim because they’re different from me in key ways, but I do turn to them for strategic guidance around what they learned walking a similar path to my own.
Funders — these are my LPs and other important people I need to believe in me. They make my job possible, and it’s important I present my best self to them (no dumb questions allowed).
4. You’re all alone with your thoughts.
Sitting on a pile of decisions you have no way of knowing the quality of for a very long time. You should feel a lot of responsibility to the people you took money from. You should probably get an executive coach to work on your relationship with yourself. Time at work ranges from being brutally critical about all the things wrong with a person/idea to being a switched-on salesperson of your money/approach to engulfing yourself in the emotional art of helping and building trust with a person on whom you’ve made a sizable bet.
In many ways, the job of the writer and the job of a VC are quite similar, in that they both ask you to produce an original end product (in the writer’s case, articulated ideas and stories; in the investor’s case, a differentiated portfolio with outsized financial returns) without much of a map for how you get there. The reason professional writers complain about writing so much is that it’s really difficult to wrangle your brain into producing uniquely interesting thoughts all the time, and highly frustrating when you consider it your job to do so. Making good investment decisions is similar; just with the added element of also being highly social. Taking the quality of your self talk seriously seems superfluous but is an investment that will result in better decisions.
5. A good fund brand bat signals your people and deters disbelievers.
A lot of the game of investing is won by getting people to think of you — a sign that you’ve built the kind of moat we call a strong brand. Remember: a fund is just a pile of money with a person on top to sell it. As an investor, putting down stakes in the ground about what you invest in saves you a lot of time in the long run because it allows people to self-select for fit — give reasons for the wrong people to opt-out and the right people to reach out (this is the main function of my publishing this writing).
I’ve been surprised by how much it’s benefited my fund to make Moth’s brand (i.e. what I invest in and look for) difficult to summarize in a sentence. For small early-stage generalist funds like my own, quality matters much more than quantity. Quality deals almost always come from trusted sources who resonate with my taste, not from a list of random companies for which I have no context.
A brand is a promise to show up in the same way time and time again. Good brands are built on being decent and principled with all of the people you interact with. Venture is a tiny world where investors are in the business of selling their brains, relationships, and money. Doing venture solo without losing your mind requires quite a bit of internal motivation, discipline, and a plethora of people you both trust and believe in enough to build your career around. Lastly and of utmost importance: remember that fear of failure fades into the background if you focus on leaving everyone you encounter along the way better than you found them.
Graham Duncan wrote a post similar to this titled Letter to a friend who may start a new investment platform. It’s pure wisdom stemming from decades of experience building a firm — highly recommend to anyone interested in the topic.
I see the multisided market sales analogy because the similarities with outreach, decks, and deal cycle. I will add, valuable user and customer collaboration means accomplishing company goals so, a value prop is the go too. To continue the b2b tech sales rep analogy, it only works when users believe in the benefits of the product enough to make persuading the customers to buy a no brainer. And, it especially works when your value prop is so good all your customer’s customers buy. Please, try not to sell too much of your brains!