UPDATE: I'll be posting over at Tango.vc
The problem with the question “why?” is that when you give an answer you can ask “why?” again and again, trying to go deeper. Here I want to answer why I’m entering the world of venture investing. The answers directly impact downstream strategic and tactical questions, which I’ll cover at the end. So let’s dive in.
Look up at the sky, and you’ll see thousands of stars. Incredibly, we haven’t detected any life out there, famously dubbed the Fermi Paradox. With 100,000,000,000 stars just in our galaxy, we can make conservative guesses for how many have earth-like planets, spark life, develop intelligence, explore the stars, and so on. After billions of years, where is everyone?
There is plenty of room at the top. One way of measuring civilization progress is by the Kardashev Scale, based on energy use.
- Type 1 civilizations use all of a planet’s energy
- Type 2 uses a star’s energy,
- Type 3 is an entire galaxy’s energy.
Humanity could power itself with a 20TW solar installation, the size of Spain, making it type 0.73. A Type 2 civilization might employ a Dyson’s Sphere around a whole star to capture 20 trillion times more energy. Such megastructures should be detectable, even from light years away.
Not only is there a chance to build this unimaginable future, a real call to adventure. But we also need to contend with the chance that humanity is the only conscious life in the galaxy able to do it. Long term, the only way to survive as a species is to leave earth and explore the stars.
The basis of morality is the suffering and thriving of conscious creatures. If our solar system was just rocks crashing together, who cares how they went about it. The most meaningful parts of our universe are pockets of intelligence fighting against entropy. It matters that we survive and flourish.
But back down on earth there are still 700M people living in extreme poverty. It isn’t zero sum, as the history of population growth and extreme poverty illustrates so vividly.
We need to make everyone rich, and there are endless frontiers of progress. Health, education, agriculture, construction, transportation, energy, manufacturing, finance, communication, security...
How we do more with less drives this progress. Much of our history of growth is extractive, where we take without thinking of consequence, hurting people and habitats. The future will be together as a global community, restoring this jewel of a planet.
Roots of Progress
Progress comes from many sources, including globalization, fundamental research, and innovation.
Much of the developing world can grow by building the institutions and infrastructure we already enjoy in the west. More people have left extreme poverty since the year 2000 than remain.
Research labs across the world push our fundamental understanding of what is possible. This work is often done quietly, without much concern for when practical applications will be found.
Established companies can innovate with globalization and commercialization of research. Only The Paranoid Survive because incumbents get calcified and addicted to how they do business today.
New ventures help us thrive by creating and changing large markets. Incumbents have so many advantages that new companies must have something innovative to compete. Venture investing fuels these rocket ships. By helping find and support the best new companies, investors are in a unique position to help accelerate innovation. The reward if you do it well is to do it even more, at higher scale.
I’m moving into venture investing to accelerate progress, by supporting early teams taking on ambitious technical challenges.
I’ve founded two startups and worked within some of the best companies like iRobot, Facebook, Dropbox, and Lyft. All those experiences were similar in that I focused within a single product in a single market. Investing is the same spirit, but with a portfolio instead of a single focus.
Why I’m here affects tactical investing questions.
Times are frothy. What used to be a Series A in terms of amount raised and valuations is now common in the seed round. Ironically Series A investors are now getting more involved upstread in seed deal, which might mean only the round naming has changed.
Are the prices too high? Should you continue, wait for the froth to subside, or filter out expensive deals?
If your goal is large absolute returns, then it’s ok to back home runs that start bubbly. If your goal is large multiples, then you can try to compose a portfolio with more efficient rounds that don’t need stellar returns to achieve those multiples.
In my case, I want to help make a dent in the world, which means tackling enormous markets. The global non-residential construction labor market is $6T. I invested in Cruise and worked in Lyft Level 5 because consumer transportation is a $2T market just in the US. Winners entering this space can easily be worth $10B+. The price at the seed doesn’t matter when you’re in the home-runs business in these markets.
What about fund stage and size? I’m drawn to early stage investing because I love working with founders from the start of their companies. As a new investor, this is great if I want to start my own fund, as a smaller fund can participate in early stages. But what about hardware? The capital required is often larger, and timelines longer. I’ll need to refine my plans if I want to make an impact.
I’m writing here to help refine my view of venture investing, and also putting the ideas on YouTube because I love video so much as a way to learn, discuss, and teach.
My naive initial opinion was that seeking consensus among a large group of people was a great way to filter outliers. VC is a home-run business, so this seems like a bad structure.
There is a lot of nuance here as to why this view is wrong.
One side is that a single person can’t do 30 deals yearly and still build a balanced portfolio. Your returns won’t be good if you do 8 deals. So you build out a partnership to make the portfolio 30+ while also allowing partners to work very closely with founders. This is stage dependent. So this might fit a Series A stage, a seed investor can individually do 30 investments - but not work closely.
Look at YC or SV Angel, where they do many investments but don’t get on boards. They also aren’t closely involved day to day.
There are more mechanics here too, like who has the final decision to invest. Founders will build a close relationship with a single partner, but it might be the whole partnership needs unanimity to invest. This dynamic is different with 5 or 25 people in the room. I'll also look at the tone of this debate.
Another issue is generational transfer. How does a firm ensure retiring leadership allows for continuity? When diving into the details here, the mechanics of control and splitting carry become very important. As I get deeper into the actual corporate structure, there will be much more to explore here.
I have a lot of operating experience as an engineer and product manager, with specialization in machine learning and robotics. I get the tech. I’ve been a founder multiple times and I’ll always be founder friendly.
This is probably not enough for a personal brand. Brand matters in competitive deals, and I want to be someone a founder will seek out.
This is why I'm going to be so open. Thinking in public is a great way to achieve clarity. But it is also living authentically and giving back what I've learned to the community. Going deep and democratizing access are two things very important to me, and I'll live that by example.
Go subscribe to my new YouTube Channel here. You’ll see a lot more of me there.
- Meetings: 18, (+6 over last week, 30 cumulative). I still need to bump these numbers. Scheduling isn't efficient and I’m exploring calendaring tools.
- Posts: 2 (+1, 3). I started a video channel, which has a lot of setup required.
- CRM: 28 (-4, 60). I still haven’t found agreement on tools here, and another layer is sharing deal flow. There are some basic mechanisms I want, like automatically extracting entities from my inbox. I’ll write more on this area in a future post.
I’m diving into Secrets of Sand Hill Road and enjoying it so far. I’ll post a review when complete, but it’s already obviously worth reading for those getting started in investing.
On a meta level, I treasure this time of learning because it builds empathy for those that don’t know. I remember reading a VC website in 2007 about a seed program with convertible debt. At the time, I thought, “I don’t want to go into debt”, obviously not understanding the structure. Whenever I talk to new founders I can understand their perspective. Never be condescending to novices because they’ll learn the mechanics in time but remember your attitude.
And subscribe on my vlog here on YouTube.
This blog is all about clarifying my thoughts around investing in technology startups and getting into venture capital.
I'm going to start making video versions of these posts. This unlocks other formats too, like interviews, which broaden the scope and allows you to hear from experts directly.
The first episode of my new YouTube channel is all about my dive into VC. Subscribe and share! And please leave comments with feedback and questions.
“It’s a very exciting time” - Tank
Last week, I announced I left Lyft to pursue investing. It’s been a wonderful week with meeting founders, investors, and friends. It’s energizing!
It’s also clear I have an incredible amount to learn. In the spirit of writing to help clarify thinking, I will publish on this blog routinely. This post is obviously meta, but most posts will be about valuable lessons learned. Subscribe to get new posts: instantly or in a weekly digest.
I generally bias towards action.
I need to understand partnerships, to find a good fit. This makes my action bias bad: I have months and should act that way. This falls into a general category of meta-cognition: delay deciding to avoid bias as you learn.
Also, I’m hearing wildly varied stories from different people, which means I should hear from many more.
Garry Tan over at Initialized just put out a video, first in a series, featuring one of their founders. While podcasts are still growing but very popular, video is underrated for startups. In addition to writing, I hope to get into this game. There are simply too many interesting people to not sit down and capture how they look at the world. This includes investors, their LPs, founders, and operators.
It’s also clear that what I’d been told about VC being an apprenticeship business has corollaries. Namely, there is an oral tradition to transmit information. While backchannel candor can’t be replaced, many conversations I’ve already had should be broadcast. On the other hand, recording changes content, so I’ll need to tread lightly.
Investing has ridiculously long feedback loops, like 5-10 years. That can be for a single fund, and you might have just gotten lucky. This makes the true feedback even longer.
I love metrics, which means I should try find proxy metrics to help track. I expect this to change, but in the short term, it will encourage me to do the right things. Here are three, with my low numbers from last week.
Meetings: 12. How many phone calls and in person meetings. The steady state should be 30-50, eventually dominated by pitch meetings.
Posts: 1. This is number 2. I’ll include both writing and videos.
CRM: 32. There is surprisingly little consensus for which tools to use. For now, I’m counting rows in my new junky spreadsheet. Just importing my social graphs would bump this by thousands, but that isn’t meaningful. I need to stay connected to 10,000 of my closest friends :-D
How to Learn
I’ve been asking folks how to learn about investing. Some recommend sitting in pitch meetings with potential partners to understand how they think, in one case for a full year. This seems especially high signal to learn about people, not just the business.
I also expect that active angel investing will help better understand my co-investors. There are probably limits because of timing. I won’t see bad behavior in just a few months, like a bad actor causing problems at a startup when things go south.
I’ve been asking for book recommendations too. Here are a few now in my reading list:
- Venture Deals
- Secrets of Sand Hill Road
- Venture Capitalists at Work
- Mastering the VC Game
- Trillion Dollar Coach
- Something Ventured (a documentary)
Other books not directly about VC are recommended to understand partnerships: