A Venture Capitalist Takes Flight: The Approach
A look into how I define "Investor", my mission statement, my thinking applied as a software system & a dive into my initial investment approach.
TL;DR
An Investor should act as a platform for entrepreneurs.
My mission statement is “To be a catalyst for the movers and shakers of the world to solve the world’s hardest problems while making sound investment decisions for the long term benefit of society.”
I am using Tim Urban’s explanation as to how Elon Musk thinks as a foundation in my investment approach.
The industries I am most interested in/excited about change are Ed-tech, Fin-tech, Healthcare, Frontier, and 5G.
My approach to investing is going to be based around Bill Gurley and Benchmarks’ views. Why try to predict the future when you can view the present very clearly?
What is the role of an investor, to me, personally?
As defined, an investor is any person or other entity who commits capital with the expectation of receiving financial returns.
There is something under the surface that the definition doesn’t bring to light. I believe the role of an investor is to not only act as the financial leg, but also a network leg, mental health leg, and “GTFO of the way and let them create their company” leg. With these four legs, the investor acts as a platform for their portfolio companies. As Bill Gates said:
“A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it. Then it's a platform.”
The same can be applied to the role of the investor, IMO. Be the lubricant a company needs when they need it. Need help hiring your first PM? Done. Can you help us get our first 10 partnerships? Done. Here is where we get into a sticky situation. I have listened to countless conversations from people I know telling me about difficult investor relations. This subject can go into an entire article so I will save it for that. The point I want to make is… I don’t want to turn into the person who is short term goal-oriented, GROW AT ALL COST, return the fund! return the fund! etc. As inexperienced as I may be, I understand that type of mentality doesn’t work for the long term in any endeavor.
All investors tell entrepreneurs… be adaptive, empathetic, strategic, open to change. As an “Investor” that is a part of my description too, and that is the role I will choose to play moving forward.
Be a part of something bigger
Ah, the mission! Missions are cool things. They give you something to look forward too and something to strive for. Companies thrive in the pursuit of a mission. Let’s take a look at all the largest companies and their missions.
Apple
“To challenge the status quo. To think differently”
Tesla
“To accelerate the world’s transition to sustainable energy”
“To bring the world closer together”
Love them or hate them, they are all striving for something bigger than themselves. Notice how none of them are talking about computers, cars, or social media feeds. It’s bigger than that. Below is my Mission for VC. It is closely related to Chamath Palihapitiya and his firm, Social Capital (More on that in a moment).
My venture capital mission statement
“To be a catalyst for the movers and shakers of the world to solve the world’s hardest problems while making sound investment decisions for the long term benefit of society.”
A short aside: I am inspired by Chamath Palihapitiya and the work he has done since leaving Facebook. The first video I watched of Chamath was his Stanford appearance. His opinions are loud and contrarian. His focus is long term, not short. I choose to go long.
I can feel you yearning to discuss these topics more in under 160 characters. Go on, press the button, and let’s learn from each other! A follow would also be too kind.
One of my favorite things he talks about is taking audacious points of view of the world and training yourself to be patient. I feel like a lot of founders and VCs have lost sight of the long game. He goes on to say that the VCs in Silicon Valley are a bunch of soulless cowards… regardless of truth or not, the cojones on this guy are insane. He is a true contrarian, thinking for himself/his world view and not just speaking out to go against the crowd. I admire that from a distance.
A look into my software update
Tim Urban is an amazing writer. I had the pleasure of getting to read his series on Elon Musk and Tesla. I definitely recommend giving them a read. Also, keep in mind they are long-form. So, sit down, cozy up, and prepare to be enlightened.
Tim wrote this awesome piece on how Elon Musk thinks. We all have this surface-level understanding of what Musk is doing with Tesla and SpaceX. But this article is an in-depth analysis as to how Elon Musk is able to do all the awesome Iron Man things and still remain intact. To summarize a section of the article, mainly based around Elon’s thought process, I am going to attach an, at first glance, confusing image. Bare with me.
Woah, Um, Adam… whats going on here?
First, let’s think about the idea that our brains are computers. We have a software system up there and we are constantly developing new software updates to view the world. We are born with the most current hardware at the time, mine…circa ‘96. We begin our lives in the comfort of our parent’s homes. They begin to instill in us values, morals, ideas, beliefs, and “truths” about the known world. We graduate to pre-k through college where we are exposed to society and the realities of life. We establish a whole new set/updates of beliefs, ideas, and “truths” (some not our own). Like any system, if not continuously improved and updated, it will become outdated and obsolete. Moving forward, think about the above system as software, taking inputs, and producing outputs. Simple. Let's break down the system laid out by Tim Urban. The dude is a genius.
Want (Blue box 🟦) - Here are the things you want…so, what do you want? It could be that dream job, or in this case for me, more knowledge and experience to break into the venture capital world.
Reality (Yellow box 🟨) - What is possible in today’s day and age? What are you capable of? Ex: I could research various topics on becoming a VC, learn from the experiences of others, take advantage of new tech, etc.
Goal Pool (Green overlap 🟩) - See that little overlap there, those are the goals you can achieve. Pick one of those and move forward! My Goal: Break into VC.
Strategy and Strategy formation (Orange box 🟧) - What do we do in order to achieve the goals we want? We focus on them, deploy resources, and work towards them. A part of my strategy: Build out a personal CRM with all the VCs I’ve connected with, produce useful content on this blog, etc.
There you have the most basic and foundational blocks of the system. But there is something of equal importance missing from this.
First Principle Thinking
I was first introduced to First Principle Thinking about a year ago. I am surprised I hadn’t stumbled upon this article sooner, I was 22 at the time! The concept of first principle thinking is to break down complicated problems into their most basic elements and then reassemble them from the ground up. This way of thinking helps us establish what we know to be true at the time for any given problem we are trying to solve. I don’t want to elaborate too much on this so here is a list of Socratic questions I use when I am thinking about my wants, realities, and goals. I will be using these questions more methodically in my investing life.
Let’s move to the Circles in the system
Results, Feedback, & New Info (Orange Circle 🟠) - The only way to figure out if your strategy is working… is to test the heck out of it. This requires action, which everyone is scared of (including me), and adjustments to the current system when new information is processed, which everyone is also scared of. But in this… your actions, adjustments, and experiences battle harden your strategies. Keep going, keep testing.
A Changing You (Blue Circle 🔵) - I bet you have never thought of this, but you are a living thing. Wild… I know. You, as a person, are changing constantly. You want new things, you change your mind on current things, and the things you wanted before, well, you kinda don’t want anymore. And THAT IS OKAY. We live in this society that sometimes forces our hand and makes us feel like we have to keep going down the path we don’t fit with anymore. We invariably have to live with those decisions because of a lack of reflection. Continuously reflect on who you are as a person, adjust to who you are now and who you want to become. Evolve and adapt. It’s okay.
A Changing World (Yellow Circle 🟡) - The world is ever-changing. We as a society are moving faster and faster each day. We are learning new things and finding out the things that weren’t possible in the 90s and early 00s are now possible! Look at us go. It is your job to stay up to date on current events and macro landscapes. Because they are changing and changing fast. Be aware.
Macro Adjustments (Big Red Arrows 🔺) - The continual check-in between the micro and the macro. We are individuals ingrained in our own lives, goals, and priorities. We are always so focused on what we are doing right now. In order for this software system to be effective, we need the awareness to zoom out continually and constantly assess if we are working on the right goals. Zoom out from time to time, it’ll do ya some good.
So… What was the point of all of that?
The system Tim Urban laid out and I summarized above is an ecosystem; An ecosystem that lives within each and every one of us. It is adaptive and naturally honest by its first principle foundation. Beautiful, if you ask me. This system can be applied to your individual life but also, in this case, how you view companies and their place in this world. Companies are like us, living things. They must be adaptive and honest if they are going to survive the complexity of the biosphere. This is the thought process I will be mastering moving forward. If it serves Elon Musk…well, it might do the same for me?
I also must mention that though I believe this system to be effective... it is by no means perfect, and neither am I. There is a lot of luck involved when it comes to investing. The attribute I will be looking to avoid is that “I am right by merit” if a portfolio company is to succeed. The mentality behind investing should be process-driven and unbiased but without a doubt, there will be luck involved in every decision. We must avoid the “I knew all along” statement at all costs. You don’t know shit and neither does anyone else.
I have so far explained how I want to be as an investor, my overarching investment mission, and the applied thought process moving forward in investing. All foundational, but let’s get into the nitty-gritty!
My Industries
Ed-tech 👩🏫
Fin-tech 🏦
Healthcare 🏨
Consumer 💁♂️
Frontier 🚀
Possibly 5G? 📱 (I want to research this area more.)
Simple and straight forward. These are the industries I believe will have the biggest changes in the next 10-20 years. I think the next best course of action is: 1.) Be wonderous of hidden secrets and problems in our world. To assume we have found everything is blasphemy. 2.) Focus on the initial approach to investing and not so much trying to nail what I think the future is going to be. Without further ado…
My Initial Approach
The usual investor check marks
Need - A painful re-ocurring problem that is urgent.
Product & Tech - description of the technology
Value Proposition - I would like a qualitative explanation of why you think your product is awesome.
Team - Why are you literally the best team to solve this.
Market - Bottoms-up market sizing by calc the number of actually target addressable customers and triangulation of prices based on market data points.
Competition, Differentiation, & Defensibility - Explanation of why you're technically differentiated.
Go-to-Market - Bottoms-up revenue build-up of the number of customers you must win to get to projected ARR. The channels to get there.
Traction - Numbers. MRR, # of customers/users, CAC LTV, etc. Don’t dodge the inevitable.
Round Dynamics - Precise number of funds you're raising that you can justify with the general use of the funds.
Conviction - How much conviction does the founder have in their thesis.
These are all important to understand a company but I don’t know if simply check boxing these will set me apart from other aspiring investors. So we need to dig deeper into an approach that is nuanced.
Bottom-up approach
As I have taken applicable value from Social Capitals’ mission statement and Elon Musks’ way of thinking… I must take something else. Benchmark Capital, Baby. Yeah… You know the one that invested $7m in eBay and it blew up into a $4-5b stake? That one! I have taken the time to study up on the approach that Bill Gurly and Benchmark take on investments. I have to say I agree with 98% of what is being said. The other 2% is simply a buffer for me to develop my own style.
The underlying theme of their “anti-thesis” is not about predicting the future... but about seeing the present very clearly. Doesn’t that sound a little like (cough, cough) how Elon Musk thinks?!?! Answer: IT DOES. Benchmark Capital has had some of the most successful companies walk through its doors. Uber, Stitch Fix, eBay, you name it. Their differentiated approach in viewing the world has made all the difference over a 20+ year period.
Similar to the thought process section… We live in an extremely complex bioshpere. A top-down approach to investing takes into account macroeconomic landscapes, how that may be impacting specific industries, and then down to a particular company within that industry. Now let’s weight the probabilities of a successful investment decision? ehhhhhhh.
The investment approach I am choosing to take is the bottom-up approach
This means to seek out and get excited about the founders that are changing the way I view the world in the present. Find the companies that are adaptive, long-term focused, non-obvious, monopolistic like Peter Theil’s book Zero to 1, innovative, and meritocratic. This is a good starting point and a good lens to view companies through. Merge this bottom-up approach with First principle thinking, Socratic questioning, a mission that is bigger than all of us and you get a battle worthy process that should, in theory, become stronger as time passes.
In closing, I figured it would make the most sense to steal from the people and organizations I admire the most. Consciously create a rough sketch of how I want to be as an investor, work towards the level of thinking I need to be involved in VC, and focus on hard things that matter.
So where do we go from here? I don’t know entirely but I have some ideas. Let’s start setting up and managing deal flow through various sources, get excited about a few companies, and question the $h!t out of everything. That’s a start. I will list the resources I used while researching this article below!
Cheers🍻
- AV
Resources
https://waitbutwhy.com/2015/11/the-cook-and-the-chef-musks-secret-sauce.html
https://venturedesktop.substack.com/p/the-merits-of-bottoms-up-investing
https://www.amazon.com/Zero-One-Notes-Startups-Future/dp/0804139296
Disclaimer
All of this stuff I’m talking about above is my opinions and viewpoints. These may change at any time, just a little FYI.