The Best New VC Strategy Ever
You need game plan to stand out as a new VC. Here's the best one I've seen that worked beautifully
Venture Upward is a mini field guide for surviving, getting ahead, and succeeding as a venture capitalist. Created by David Beisel (@davidbeisel) and Rob Go (@robgo), it's written for non-partner VCs working their way through the ranks.
I like to say that years 2-5 in VC are the years of wandering in the desert. At that point, you are in make-it-or-break-it mode. Whatever operating experience you had is probably atrophying badly at this point. You are expected to start advocating for and leading deals. But you will be fighting with one arm tied behind your back because you’ll have to work harder to sell yourself to founders AND you’ll have to work harder to sell your deals internally to your partners. It’s a tough place to be.
Successful investors tend to develop some sort of a unique strategy during this period, whether it’s intentional or not. It starts with being known for something, as my partner David discussed in his last post. Hopefully, that something is somewhat non-consensus or your level of execution allows you to emerge ahead of your peers. You need to translate that “something” into action in a way that drives tangible results.
The single best strategy I’ve ever seen was executed by someone who entered the industry around the same time that I did. This is over-simplified from the outside looking in, but he had a very cogent strategy:
1. He focused on a particular emerging market segment that was one degree removed from the mainstream (so not totally crazy, but something more specific than “cloud” or “marketplaces”.
2. He shamelessly chased all the high-priced series B’s in the sector, paying special attention to the companies of a particular Midas-list investor that was doing the best series A’s in this space.
This seems pretty simple, but the strategy was predicated on two important non-consensus bets that only look obvious in retrospect. The first was picking the right market segment that was in a goldilocks stage of being pretty early, but not too early. There was enough activity that the senior people in the firm didn’t think he was crazy, but it was esoteric enough that he avoided a lot of competition. He picked a market that was active, promising, but a little under-appreciated.
The second bet was that it would be ok to overpay for mid-stage deals. This was right before DST and others started to invest heavily in later stage deals with huge success. At the time, the conventional wisdom was that the series B was really the sucker round. But he saw that the potential upside of the best software businesses and the power-law in venture in general meant that getting access to the winning companies would more than make up for over-paying. Also, making slightly later stage investments meant that his deals were slightly closer to liquidity than those of his peers, which further helped him build this track record and credibility.
These two bets allowed him to ascend the ranks of his firm and allowed him to be promoted to partner earlier than anyone else in our cohort of new VC’s (and this was back when a partner title meant something). Replicating this exact strategy may not work today, but the underlying lesson is valid. You need to have a strategy, and that strategy is predicated on making one or two good non-consensus bets that allow you to overcome the inherent challenges of being a younger VC.