Ben Braverman and I went to a women’s college. Not at the same time (I’m older), and after it went coed. But Vassar itself is a small school, so that plus its liberal arts focus means you don’t find many of us in Bay Area tech. Ben and I started to hang out because of the Vassar connection and then even more so because he was just so darn helpful. His experience at Flexport; his pay-it-forward nature; and his friendly user interface, made his a desirable angel/advisor for startups. So I wasn’t totally surprised when he shared moving from operating to venture capital. And I was glad to hear it was at a new firm of his own co-creation. Saga says they’re a ‘return to tradition’ and the trio of founding Managing Partners are committed to the craft and to one another. Excited to share more about Ben via Five Questions.

Hunter Walk: Flexport was a life-changing experience which of course in hindsight seems like a ‘no brainer’ job to take but I know at the start of things, it’s not always so clear. How did you originally get introduced to the startup and do you recall how you thought about the ‘pros and cons’ at the time?

Ben Braverman: There were no cons! I met Ryan at Duboce Park (we both had giant dogs). The few times in life when you meet an n of 1 person obsessed with a worthy quest, it’s genuinely obvious what you’re supposed to do. You’re supposed to join the mission and I did exactly that. Side note: really smart people get obsessed with the wrong quests all the time (see model trains or social discovery apps).

HW: As Flexport grew and created a leadership team, how did you decide about promoting from within versus hiring from the outside? Was it case by case for each individual role? Or was there a different framework/circumstances which influenced how you made the decision? And in the event you hired from outside, did existing high performers chafe at being ‘topped?’

BB: We built flexport during a somewhat dogmatic period and the new ‘founder mode’ trend is a reaction to that time in history. Lots of clever people told us there were fixed rules for span of control (aka number of direct reports/manager) – Jensen and his 60 direct reports hadn’t conquered the world yet. With lots of managers, you feel pressure to bring in ‘managers of managers’ from the outside.

Outside leadership is a series of paradoxes. The existing team always accepts them if the new leader is world class and the company is thriving. And yet, you’re also almost always better off just promoting someone from within – context and speed trump experience in most cases, for most startups. The second paradox though, is that we had a number of exceptional people leave the company too early because they were leveled too high, too fast. This was actually much more common than someone leaving because they were leveled (unless their new boss was an idiot). Balance in all things, I suppose. 

HW: Did you ‘stay longer than you imagined you would’ or ‘leave before you were necessarily ready’ (even if it ended up being the right decision)?’ What was it like giving up your email address, so to speak? It can be very intoxicating to be at a high profile startup knowing that your identity kinda gets the rub of success along with the company.

BB: I actually thought I’d stay at Flexport my entire career. It’s an endless market (I’m a sales guy at the end of the day, remember) and you’re fixed squarely at the center of global commerce. You can’t imagine a more interesting window into global politics than leading a global transportation business. Unions, tariffs, geopolitics, the world’s largest ships and aircraft supplying the world with every conceivable good. It doesn’t get much better. Even the hurricanes in the American south are  potentially related to global shipping – the poorly designed new sulfur regulations are likely increasing global warming and fueling hurricanes because we’re allowing the fleet to pump sulfur into the oceans instead of into the air in the name of progress.

Giving up the email address has tactically been quite a pain in the ass. I was so proud of Flexport that I used the email address to sign up for everything. Recently had to cancel HBO MAX as a result. There was no reason to use my corporate email address to watch the Sopranos other than that I just liked seeing it every day. 

HW: I know from experiences within the Homebrew portfolio that you were doing some angel investing already, as well being very generous with your time as a formal/informal advisor to founders. Were you intentionally road testing whether you wanted to try venture capital before forming Saga, or was it more casual than that?

BB: My first angel investment ever was the Flexport seed. I also got advisory shares. This is the equivalent of going on a 7 figure run on your first trip to Las Vegas. I had a completely unrealistic expectation of my picking ability and assumed I’d be able to 100x my money in a few years. It hasn’t quite worked out that way but I did learn that I don’t get tired of meeting founders. My late Uncle Richard used to buy lottery tickets next door to a convent in Boston. He’d see the same nun buying tickets every week. He asked her, ‘you don’t seem particularly financially motivated – why do you play the lottery?’. She said ‘I’m here, talking to you. Look at all the fun I’m having for a dollar!’ That’s sort of how I feel about investing in startups at this point, except that I very much also do care about the outcomes.

HW: Saga has three GPs, essentially three cofounders. What you feel like you needed to be 100% sure of about these relationships before formalizing the commitment, versus things that you might not be absolutely sure about until you’re actually in business together (but you figured would work themselves out). Maybe put differently, is choosing cofounders for a venture fund more or less similar to choosing cofounders for a startup?

BB: Vibes. Max is the common thread – he and I and he and Thomson were friends for years. When he brought the 3 of us together, it just felt right. It was fun from the jump and never felt like work, even in the midst of doing hard things together. If you want a more objective answer for why the partnership works so well, we’re extremely different from each other and bring totally different skills to the partnership. There’s never a moment where it’s unclear who is supposed to do what to move the ball forward for Saga and our partners. In that way, very similar to a great CEO/CTO partnership in a startup. The big difference is that an investment firm makes a lot more sense to run as a partnership whereas the great startups often look at lot more like benevolent dictatorships.

Thanks Ben! See you on some cap tables!

The best podcasts are conversations which take you places you weren’t necessarily planning to go. My chat recently with Molly O’Shea of Sourcery (great newsletter, you should subscribe) covered more than I was expecting!

This short clip is pretty self explanatory. I’ll never be on the Forbes Midas List (one of the annual ‘rankings’ of venture capital performance). Why?

1. Satya and I have always believed that it’s not consistent with our firm’s culture to do deal attribution (who gets credit for what), or to submit private company data from our portfolio to a 3rd party outside of what we share with our firm’s investors.
2. We’re no longer eligible since we are primarily using our own capital. But the snippet above has a brief, funny story about how we learned we were now disqualified.

I’m a Sanzo drinker. I’m also a Sanzo angel investor. The order is important because I fell in love with the product before I even knew about the company, and the hustle of its founder/CEO Sandro Roco. Over the last few years he’s been a diligent company-builder, brand steward, and community leader. Watching the boom/bust cycle of DTC brands that were running on just the sugar high of venture dollars has given me even more appreciation for those who, yes, require investment capital along the way, but are playing the long game. Here are Five Questions with Sandro.

Hunter Walk: Backstory time! Tell us a bit about Sanzo and how it was founded?

Sandro Roco: I had the idea for Sanzo in 2018. I was working at a venture-backed apparel startup for 4 years and saw the power of building digitally-native brands through Facebook and Instagram (TikTok was still nascent).

Living in New York City and finding pockets of other Asian Americans, I grew to appreciate my own identity as an Asian American. Crazy Rich Asians became the No. 1 film at the box office that year. BTS, the K-pop group, was going on a nationwide tour where they were literally selling out football stadiums.

At the same time, 2018 was the summer of LaCroix and other flavored sparkling water brands across a larger $45 billion carbonated soft drink category that has been in decline in the U.S. as consumers reduce their sugary soda intake. The big thing I noticed, though, was that across all brands it would just be the same lemon, lime, grapefruit and mixed berry flavors and so I felt like there was room.

That said, I knew nothing about this industry. A lot of consumer goods entrepreneurs either worked at Procter & Gamble or Coca-Cola or Unilever.  So getting into the industry was a bit of a process. I would go into specialty and natural food stores in New York City and look at the other independently owned and smaller brands and just cold-Instagram DM or cold-LinkedIn message the founders. Oftentimes the people behind the Instagram accounts were literally the founders.

Through this process, I was able to piece together bits of information, like where to manufacture products and which distributors to work with. Over the course of 18 months, I built up an initial knowledge set as I was developing the underlying thesis for the brand. It was very much a gradual process of getting 1% better each day.

HW: What’s something you believed about the beverage business, or consumers, when you started which turned out to be completely wrong. How/when did you realize it?

SR: So many to choose from! With my previous experience in DTC, there is/was an underlying assumption that growth resembles a “hockey stick”. In tech, there are many reasons why this dynamic exists, but the world of physical goods is not quite as exponential/logarithmic.

In truth, if it’s going well, the curve is more like a step function because a lot of the growth comes from gains in retail distribution (think launching in Whole Foods or Target, which only happens 1x-2x / year).

It may seem academic, but living it means building a business much differently. It has required a balance of aggressiveness and patience, managing cash flow, building fundraising processes around these distribution gains and many more things that I’ve had to get better at over time.

HW: Sanzo was founded, and thrived, through a time where traditional venture capital firms got excited about – and then became more disillusioned – with DTC brands. What was it like seeing some folks raise tens of millions of dollars, and where has your financing mostly come from?

SR: One of the things I loved about beverage was that because it was more retail distribution focused, it was not as subject to Meta’s algorithmic whims as other categories. And how in many ways, once you reached scale, you could build a brand and business for the long-term (think Coca-Cola as the ultimate example).

From a financing perspective, to borrow from Peter Thiel I believe there is now more clarity between those who invest in and operate in the “bits” space vs. the “atoms” space.

One is not necessarily “better” or “worse” than the other, but I think the era where founders and investors blurred these lines created unrealistic expectations and in some cases, incentivized bad behavior. So in many ways, I think it’s healthier for everyone that the lines have been re-drawn.

As for Sanzo, we’ve been fortunate to have the support early on of incredible angel investors (like Hunter Walk!) who believe in our mission of bridging cultures.  And more recently, we’ve attracted strategic capital that has either 1) experience building the brands in this space or 2) the ability to help us accelerate distribution and revenue gains.

To the former, Convivialite Ventures, the venture arm of Pernod-Ricard, the 2nd largest wine and spirits seller in the world, has invested in multiple rounds. To the latter, the venture arms of DJ Steve Aoki and actor Simu Liu co-led our most recent round and both Steve and Simu have been extremely helpful behind the scenes as we build more distribution.

HW: You’ve done some collaborations – for example, comarketing with Disney, and a Jeremy Lin limited edition flavor. How do you evaluate whether these can help Sanzo or just become distractions? Are there common asks from brands, influencers or celebrities which you say ‘no’ to right away?

SR: It may seem counterintuitive, but each partnership for better or worse has really been bespoke. But among all collaborations, we have a couple specific guidelines:

1. First and foremost, the partnership has to authentically fit the brand and pass the “eye test”. If it doesn’t pass the eye test, consumers generally can cut through the BS and any numbers you’ve run just won’t end up netting out.
2. We don’t “pay to play”. We’ve found the types of prospective partners who mandate this tend to propose very cookie-cutter types of partnerships, which just end up becoming ineffective.
3. There has to be a strategic value either in the way of bringing in a new audience or being additive to our retail distribution strategy.

HW: Sanzo prides itself on ‘Asian-inspired flavors’ – when you’re drawing from your own heritage and celebrating other regional fruits, how do you navigate marketing to consumers from those cultures versus trying to reach and educate non-Asian people? Especially staying away from stereotypes that perhaps the average American expects to see when they hear “Asian-inspired?”

SR: Honestly, it’s a process that requires intentionality and constant conversation across our entire team that ultimately shows up everywhere in our company from our retail distribution strategy (we are merchandised in the sparkling beverage aisle vs. the international goods aisle) to social media, PR and partnerships.

As people and culture evolves, so does Sanzo’s place in it. But if we do it correctly, I think it’s the secret sauce of the capital B “Brand”,  and it’s ultimately what I love about building a brand. And I’m proud that our team, especially our marketing team, indexes highly in cultural dexterity to deliver on that brand.

That said, perhaps the best way we benchmark our progress is through our first and third-party studies which have found that in just the last month, 70% of Sanzo consumers are not Asian or Asian American Pacific Islander (AAPI).

While we want to pay proper homage to our heritage and authentic background as an Asian-owned brand (I am FIlipino American), Sanzo is at its best when we serve as a bridge across cultures for both AAPI and non-AAPI.

Thanks Sandro! You can find Sanzo at many local supermarkets, corner stores or order directly.

Sunday reads for you from a too hot SF

Why Is the Loneliness Epidemic So Hard to Cure [Matthew Shaer/New York Times] – The Loneliness Epidemic as a cultural trend stared pre-COVID but the pandemic mirrored the effects of a weightlifter shooting HGH – immediate and noticeable difference in mass. Put me in the camp that believes many societal issues including drug abuse, mental illness, and political radicalism are being fueled by isolation. Physical, spiritual and economic loneliness.

The New Gods of Weather Can Make Rain on Demand—or So They Want You to Believe [Amit Katwala/Wired] – Some folks believe that we’re so far gone on climate change that ultimately the only/easiest way to save ourselves is through climate engineering. My uninformed opinion is that we need to do both sides of the coin – work to modify the practices which cause disproportionate harm ongoing but also assume we’re going to have to science the shit out of it. Of course this brings out hucksters too.

Are Bookstores Just a Waste of Space? [Louis Menand/The New Yorker] – HUSH NOW. We have two rules in our family:

1. Whenever you enter a bookstore, buy something
2. Enter every bookstore

The Future of Autonomous Agents [Yohei Nakajima/Untapped Capital] – Agentic tech is one of my favorite discussions within AI right now, so I’ll lap up any interesting POVs.

Enjoy!

The failure tiger stalked me for many years. The beast’s ferocity was intensified by my sense it was inevitable I’d be caught. Unescapable because merely the act of *aging* was going to make me vulnerable. To not being as current or ‘native’ on whatever new technology platform or trend was being adopted. To the networks being formed by the millennials, Gen Zers, and each successive generational cohort. To the increasing number of people flocking to the technology industry. How could I possibly maintain my position of influence in the food chain? And without that, there was no safety net under me. It was a straight fall to the bottom.

Grim right? But instead of turning to therapy (which I now do), I turned to Twitter. A sociable introvert IRL but extrovert behind the keyboard, I could use my favorite medium (words) to reach others. To make myself tangible and accessible. While trying to *not* give myself over to the incentives of social media influence. My followers and reach were an anti-tiger force field.

But then a funny thing happened around 2012 once I left Google, had a child, partnered with Satya to do something new – I started to cherish getting older (at least professionally), instead of fearing it. Being someone who has relationships with peers, colleagues, industry friends, that are now 10, 20+ years in length. Being someone who knows a few tricks and is good to have on your side. Not needing to be everything to everyone but picking my spots.

Reminds me of the narration to a tv show I loved as a kid: “If you have a problem, If no one else can help and if you can find them. Maybe you can hire, The A-Team.” The failure tiger has been defanged and is now my house cat.

(Well, you don’t hire me per se. In fact I give *you* the money. But for founders (https://homebrew.co/) and for new VC firms (https://www.screendoor.co/) who are raising capital, you can find us.)

I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Reporting out in batches of five. Here’s Part V:

VC is a profession! That sounds obvious but the perception continues to be pervasive that the job can be done as a side hustle without full-time focus and years of learning the trade. It takes time (as in decades, not years) to learn the art of opportunity identification and hone one’s individual style for engaging founders. Also, because the feedback loop is very long, the advice we give founders – to move fast and iterate – is hard to put into practice as a venture investor. This leads to the second non-obvious thing about the profession: one has to have long-term faith in our ideas and approach to the market way in advance of real success. The interim measures that get celebrated (winning deals, having one’s deals marked up quickly) are more often than not uncorrelated with ultimate success and the best measures of early progress are more emotion than science. Patience, optimism, and a little bit of blind faith are required to be good at the craft. [Ethan Kurzweil/early stage investor, new firm TBA]

[hunter: When Ethan first joined his previous firm Bessemer Partners, he told me it would just be a few year stint before a startup. Obviously it was longer 🙂 and I’m excited for him to take a different type of entrepreneurial journey building his own firm with some industry friends. As to the “it takes a long time” advice. Yes, although I believe there are ways to ‘learn faster’ – which includes great mentorship, experiencing business cycles, and actually working to service investments not just make them. ]

One thing I wish people better understood is that venture not only requires conviction in founders, businesses, and markets, but it also requires conviction in a point of view in firm-building.

There are many ways to make (and lose) money in this asset class, to construct a portfolio, to source and win investments, and to help (or not) founders build companies. There are now enough data points to show that any of these models can work and not work. And trying to copy someone else’s playbook won’t work because this venture market is now saturated enough and competitive enough – you have to have a point of view on your edge, and how that edge will deliver outsized returns, repeatedly. 

That leads to my second thing I wish people understood – that this business is hard. 😉 

As a side note, another thing I wish people (especially women and other underrepresented talent) understood is that while venture is a money-management and investment business, it doesn’t require a deep finance background to do it (at early stages). I talk to a lot of great women (particularly deeply seasoned operators) who disqualify themselves from pursuing venture because they think they don’t have the finance background for it. That part can be learned! [Lily Lyman/Underscore VC]

[Hunter: 100% regarding run your own playbook. It’s an essentially aspect of the firms we back via Screendoor – are you understanding the fundamentals and physics of this business while somehow developing a strategy that is different enough to matter. The world doesn’t need more of the same VCs.]

To the outside, all VC firms pitch founders on essentially the same product—there’s a range of check and fund sizes, wrapped in some kind of marketing. But when you look under the hood, the variation in how investors approach this job is staggering. There’s no go-to playbook for building a successful venture firm—you can be brilliant or mediocre with any number of strategies. As someone who is newer to investing and firm-building, it’s been fascinating to learn from peers who have total conviction in their portfolio construction, sourcing edge, decision-making process, value-add, etc…and at the end of the day, that conviction is probably more important than the approach itself. True feedback loops are incredibly long in venture; for emerging managers, you’ll raise subsequent funds well before you have the luxury of knowing where that first fund will land. Finding the approach that works for the partners—and can sustain you through all the ups and downs—is what matters. 

And for founders: having curiosity about how potential investors approach their job can be a real edge. How do they make decisions, what have they learned from their most successful bets, what math are they doing for any one investment? Not only will they likely enjoy talking about this, but it will give you a useful glimpse into their worldview and incentives. [Ashley Mayer/Coalition Operators]

[Hunter: I sometimes ask founders to think of their cap table early on as a recipe where investors are ingredients. The best dishes have mix of components in proportions which make sense. Where we can, we try to help a founder understand what they might want to add and examples of individuals or firms that spike in that area. For example, Ashley’s background in marketing and comms (across B2B and B2C) differentiates her from many other emerging managers.]

Your portfolio is your brand. Even if you don’t have as large a following on socials as Hunter (!), if you have a clear investment framework and partner with founders consistent with that thesis you can quickly build a reputation. Having a strong POV also helps with finding…

LP/GP fit. Despite talk of industry consolidation in venture (which wouldn’t be a good thing for founders or the ecosystem), there seems to be an increasing appetite for smaller funds from institutional LPs, in recognition of the fact that they outperform. You just have to find LP/GP fit, or the folks who are in the market for your particular POV. Unfortunately, LP investment theses are rarely shared the same way VC ones are; you can ferret them out by talking to other GPs, for which there is luckily an amazing…

GP founder community! Just like founders constantly swap notes and pay it forward, there are many supportive communities of founding GPs who graciously open their rolodexes to one another and share guidance on new firm development. New managers should actively seek them out. [Leshika Samarasinghe/Twine Ventures]

[Hunter: Portfolio is your brand!!! My slight variation is “Your portfolio page is your thesis” but we’re getting at the same thing. Your job is to invest. And all the punditry, market maps, and so on doesn’t matter if you’re not in great companies which match your articulated focus areas.]

Part I: Andre Charoo, Bill Clerico, Ryan Hoover, Amy Saper, and Dan Teran.

Part II: Victor Echevarria, Chris Neumann, Micah Rosenbloom, Alexa von Tobel and Roseanne Wincek.

Part III: Maya Bakhai, Paris Heymann, Nakul Mandan, Eric Tarczynski, and ANONYMOUS

Part IV: Diana Kimball Berlin, Jake Gibson, Jesse Middleton, Adam Nelson and Nikhil Basu Trivedi.

I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Reporting out in batches of five. Here’s Part IV:

Here’s something I only realized about VC once I joined Matrix: more or less everything we do as investors is implicitly an invitation to reach out. To trace the line of thought to its source: I can only invest in a founder I meet, and I can only meet a founder I know about, so I spend a lot of my time reaching out to founders and probable future founders—but that still only scratches the surface. So whenever I have a spare minute, I try to post something to the world wide web that might possibly entice an unknown founder or future founder to track down my email address and send me a note. It’s a lossy approach, but it’s also the only way I know to cast a wide enough net.

In my previous life as a PM at startups, I squinted at the vast volume of VC internet activity from a distance and assumed it was a mix of self-expression and broad “brand-building.” What I can say now from personal experience is that all the frenetic posting is actually getting at something much more specific: it’s us angling for a “same here!” or “I was thinking more about what you posted…” or “funny you should mention that, we just started building” note from out of the blue—especially from people who are too conscientious to “impose” without a timely premise. (By the way, it’s never an imposition when you reach out; keeping an open inbox and an open mind is a lot of the job in VC.) So the next time you see one of us post, just know that we’re waiting for you. [Diana Kimball Berlin/Matrix]

[Hunter: So I agree with Diana – of course it’s prospecting, and for most investors, it’s genuine interest and curiosity driving their efforts in this area (besides the fact it’s essentially our job). BUT I’m also a believer that most founders shouldn’t waste time with extensive investor conversations unless they’re getting ready to raise capital within the next 3-6 months -or- you believe an investor can help you in some specific way separate from/ahead of a funding.]

I wish more people understood that venture is a people business first and foremost. Building anything of value, whether a company or a fund, takes a village. At BTV, we believe the most important thing is having the right people around you, and the right relationships, to build each other up and push each other  forward. Relationships between VCs and founders, as well as between VCs and their LPs, last a long time. And the best relationships follow you through your entire career.

So the transactional behavior that shows up in our industry – founders creating FOMO to force investors to make decisions within days, VCs being cheerleaders when things are good but disappearing when things hit a snag, etc, are all counterproductive. If you take the time to build the right relationships with the right partners, we’re all here to lift each other up. [Jake Gibson/Better Tomorrow Ventures]

[Hunter: It’s a relationship business that’s built on transactions – isn’t that the ironic rub? It smarts when an investor or founder with whom you think you’ve built a great relationship doesn’t include you in something. While it’s often not personal, and each opportunity has its own context, it does mean that you didn’t do you job.]

One key point I’d like to highlight is that venture scale doesn’t always mean technology startup. There’s a saying, “the riches are in the niches,” and I believe this holds true — especially outside of pure technology plays. A common misconception is that building a tech company automatically warrants venture capital, and vice versa. Over the years, these ideas have merged, but in reality, we’re often looking for deals on the edge—those outliers with big upsides. These businesses might not make immediate sense on the surface.

We tend to invest in unconventional people, ideas, and markets. While this is generally true, the core is about companies that can take a small amount of capital, grow exponentially, and ultimately create significant value, potentially returning a fund multiple times over. Find an investor who believes in *you*, as a founder, building this outcome and you’ve found a fit. [Jesse Middleton/Flybridge]

[Hunter: One thing I’ve been talking about with Satya is some days I feel like there are cohorts of 2024 founders who are (a) ‘better’ than 2019 founders [in terms of experience, know how,] but (b) solving less valuable problems than 2019 founders [because in certain categories we might be in-between innovation/value creation cycles]. Do you bet those founders can figure it out (and that we’re wrong about the ‘value’ of the problem), or does market always beat founder?]

Early stage rounds today are, in many ways, more a function of capital supply dynamics than actual company value creation

There are, in any vintage of startups, finite opportunities that can create the outcomes required for institutional venture capital—it is an asset class with meaningfully diminishing returns as it scales. While some of the euphoria of 2021 is gone, we’re still in a moment where oversupply of capital is perverting some early stage market dynamics. At the moment, funds are deploying historically large war chests at this finite group of opportunities with hopes to be part of these few large outcomes. This dynamic gets exacerbated as you get earlier in company life cycles where the quantum of capital for the large allocators becomes less meaningful and before actual metrics and multiples converge to larger (e..g. public) markets.

For now, this has created a binary moment of haves and have nots. There are “hot” consensus companies that have significant demand for their rounds (much of which is preemptive vs. normal milestones) and meanwhile the unspoken truth is that the vast majority of the ecosystem is manufacturing rounds or struggling to raise. In a world where GPs are experiencing similar binary dynamics, with many funds being culled in the process of LPs potentially rotating out of the asset class, cost of capital will rise and the “have nots” in the early stage market may signal a new normal. [Adam Nelson/FirstMark Capital]

[Hunter: Oh my goodness, yes. I’ve got a blog post teed up mentally about why seed rounds are what they are. Maybe I’ll still write it but I agree with Adam here.]

We all know that VC is a Power Law business. A single exceptional investment can return multiples of a fund, make up for every other investment being a loss, and render modest returns (e.g. 2-5X multiples on investment) quite meaningless.

But not every VC firm and individual VC is primarily incentivized by the Power Law. Firms with very large funds make a lot of money for themselves in management fees before realizing returns. Individuals get promoted for successfully out-competing other investors and winning over founders long before knowing whether those were great investments to make. Those incentives are often misaligned with the interests of founders and limited partners. 

So next time you’re assessing a VC as a potential investor in your company, or considering investing in their fund, do your diligence on their structure and incentives. It will govern their behavior as you determine whether or not to partner, and for the years to come thereafter. [Nikhil Basu Trivedi/Footwork]

[Hunter: Power Laws was mentioned twice in Part III of this series – you can see how fundamental they are to our business! Here NBT does make a note that it matters (a) how big the outcome needs to be based on fund size and (b) what the dynamics of a GP’s incentives are in how they think about what ‘success’ looks like.]

Part I: Andre Charoo, Bill Clerico, Ryan Hoover, Amy Saper, and Dan Teran.

Part II: Victor Echevarria, Chris Neumann, Micah Rosenbloom, Alexa von Tobel and Roseanne Wincek.

Part III: Maya Bakhai, Paris Heymann, Nakul Mandan, Eric Tarczynski, and ANONYMOUS

Part V coming soon….

I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Reporting out in batches of five. Here’s Part III:

The term “VC” is a convenient, encompassing term, but it is an ambiguous categorization. For better or worse, “VC” is a disorganized, unruly, messy set of people and firms whose emergent behavior about important things does not converge. When folks want to vent/disparage VC they should feel free to use the ambiguous category. When people want to better understand it to raise capital from folks who can help, they are best served accepting the annoying bespoke/boutique nature of it and handling it accordingly. [Anonymous/Large Multistage VC]

[Hunter: I don’t believe this was specifically what they were referring to but I’ve noticed VCs hate when the press says/implies “all VCs” and press hates it when VCs say/imply “all reporters” ¯\_(ツ)_/¯ ]

I wish more people understood that VC’s have investors too. Called “LPs” or Limited Partners. The VCs will invest on behalf of a group including individual investors, endowments (like universities), financial institutions (like Banks) or Non-Profits. With a few legendary exceptions (like Hunter and Satya) most VCs haven’t had the personal success to deploy millions into startups. They have to fundraise just like startup founders. In exchange for managing LP money, a VC firm will get up to 20% of the amount raised as a management fee (even if every startup they fund fails) and on top of that, will earn 20% of any profits. For example, if a VC fund has $100M dollars under management, the firm is getting paid 20M over the course of 10 years just for setting it up.

You must follow the money to understand incentives! VCs are investing other people’s money – employed by a firm, taking a salary…working a JOB. They usually don’t have the same risk tolerance as a founder. A VC firm’s fiduciary responsibility is to their LP. When you read a thought leadership blog post from a VC – is it actually advice for founders… or is it to establish expertise so LPs keep giving them more money? Founders should not put VCs on an unnecessary pedestal! If you are relying on a VC’s insights to build your startup, you are playing with fire. Don’t take their advice too seriously, and don’t take it personally if they don’t invest in you – there’s an unseen set of stakeholders at play. All money is green. [Maya Bakhai/Spice Capital]

[Hunter: Incentives make the world go round! Sometimes folks will say VCs’ true customers are LPs, not founders. I’ve always thought about it a bit differently: LPs are my partners, not my customers. I wouldn’t be in business without them (historically) and value their needs, but I have the agency to run my business the way I want to, and work in service of our investments.]

So much has been written about venture-backed startups and particularly about the most successful outliers. Yet despite our collective fascination with those awe-inspiring stories, it’s still under-appreciated to what extent power law governs venture capital. It’s not always intuitive, but a small number of companies, led by exceptional entrepreneurs, determine the financial performance of the entire industry. Finding and investing in those select few is an obsession and ultimately a craft in its own right. [Paris Heymann/Index Ventures]

[Hunter: I think there was some data which showed that every fund they tracked which hit 3x net returns had at least one 20x outcome. As Paris suggests, slugging percentage tops batting average.]

I wish more founders understood that the power law and power law style growth drives all behavior from VCs. Accordingly, if you’re building a venture backed startup and/or want to raise venture funding in the future, you have to architect your company for a growth rate consistent with a power-law style business in mind. Of course, foundationally strong unit economics are critically important for a business to be durable, but growth and ability to paint a larger-than-life future for the startup lead to more excitement from VCs than every other factor. 

As an extension to this, I’d urge all founders to read Paul Graham’s post: Startups = Growth. To quote PG from his famous post: “If you want to understand startups, understand growth. Growth drives everything in this world.” [Nakul Mandan/Audacious Ventures]

[Hunter: I put this one next to Paris’ because they’re so similar. Founders who take traditional venture capital should assume their goal and expectations are these sorts of outcomes. At the same time, venture investors need a degree of patience and conviction to support companies as they figure themselves out, and the grace to be constructive even when it doesn’t seem a specific investment will achieve outlier results.]

That the act of investing — esp. if building a firm vs. a GP in established platform — is often a very small % of how a VC spends their time. 

Raising capital, recruiting talent to the firm, managing people, investing time + resources into brand-building (still the single most important moat in venture), etc. — all take place *in addition to* partnering with and supporting founders. 

Necessary to understand the firm and who they want to be — that will dictate how they spend their time. [Eric Tarczynski/Contrary]

[Hunter: One of the reasons we never wanted to grow Homebrew very large -and- in 2022 declined to raise a traditional next fund (investing our own capital instead), is that our goal is to spend as much time as possible with founders we’ve backed and founders we might back. Plus time togerther as a partnership working on getting better, not just operational overhead. These choices come with different tradeoffs but they’re our north star. ]

Part I: Andre Charoo, Bill Clerico, Ryan Hoover, Amy Saper, and Dan Teran.

Part II: Victor Echevarria, Chris Neumann, Micah Rosenbloom, Alexa von Tobel and Roseanne Wincek.

Part IV coming soon….

I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Here are the first batch of responses (with some of my reactions). More to come in batches of five answers each post.

The beautiful truth about the game of VC is that it consistently rewards difference. This difference comes from the outlier returns driven by backing founders who are different. Of course, difference inherently carries risk. Despite this truth however, institutional LPs aren’t incentivized to take that risk. I wish the structure behind institutional LPs were more conducive to backing GPs who are different. Because, in turn, these GPs will back more founders who are different, which will lead to more outlier returns, which ultimately leads to more products and services that change the world. [Andre Charoo, Maple VC]

[hunter: 100% agree. The majority of established venture firms are evolving into large asset managers, and this creates space + opportunity for all sorts of new strategies, the best of which will absolutely outperform, on a multiple basis, the entrenched. It’s part of the reason we started Screendoor, a fund of funds aimed specifically at new VCs. And we’re proud backers of Andre/Maple.]

There are many ways to play the game in VC. Knowing your strengths and which game to play is critical when managing a fund (and more broadly, any professional endeavor).

Some investors get pulled into different games, perhaps unknowingly, through their career as a manager. One of the biggest “traps” is in escalating fund sizes. Deploying a $10M fund is wildly different from operating a $100M fund. It can be alluring to raise more capital in each consecutive fund, but doing so often requires the fund to deploy larger checks, shifting their position as a collaborative investor to competitive player among peers. Now they’re stuck fighting to secure the lead position in a round and sourcing companies earlier in their fundraising cycle. Some will succeed in this transition. Others won’t. [Ryan Hoover, Weekend Fund]

[hunter: The gravitational pull of venture is to grow each fund larger than the last. And it’s often to the detriment of everyone involved, but especially to the detriment of founders and LPs. I’ve been a personal LP in every one of Ryan’s funds and part of what has always impressed me is his understanding of these tradeoffs in strategies and incentives.]

There is a large contingent of the venture ecosystem that believes “the best founders don’t need help.”  In my experience as a founder and as an investor, this is not true.

The road to building a large business is paved with opportunities to kill your company through inexperience. This is especially true in the early days.  While it is not the job of the investor to build the business,  preventing terminal mistakes can be there difference between a 0 and a $1B+ outcome.

In reality, everyone needs help.  Whether or not investors are qualified to provide it is probably the right question for founders and LPs to be asking. [Dan Teran, Gutter Capital]

[hunter: We backed Dan when he founded ManagedByQ and are personal LPs in both Gutter funds, so I’ve gotten to see him on ‘both sides of the table’ so to speak. My POV here is that we seek to invest in founders who have an outsized chance of succeeding without our help, and then try to increase the probability and velocity of their success with our assistance. As Dan also notes, self-aware uninvolved but ‘do no harm’ investors are much better than those who offer help that is either (a) inconsistent, (b) incorrect or (c) self-destructive.]

Venture capitalists arbitrage risk by raising capital from risk averse institutions and using it to back founders in highly risky endeavors (with potential for outsized return). This requires a sometimes difficult translation – and so most firms end up focusing on one vs the other. But if you become too LP-centric, you build a soulless asset manager that turns the best founders off. Don’t learn to speak LP and you’ll stay a small fund forever without the ability to be a significant partner to founders. [Bill Clerico, Convective Capital]

[hunter: So there’s clearly a ‘bias’ in the sample set here, caused by my own interests and networks, but I think it speaks to the mindset of those VCs who decided to start their own firms, versus those who joined existing large shops.]

The frequently overlooked importance of “founder-investor fit”
I’ve been an early stage venture capitalist for five years at two very different firms, Accel and Uncork Capital, and have gotten the chance to collaborate and co-invest with VCs at dozens of other firms across a large range of AUM, stage focus, sector expertise, and portfolio support. One element of venture capital that I don’t think is discussed or appreciated nearly enough is “founder-investor fit”.

Founder-investor fit involves ensuring that a particular VC (both the individual partner and their firm) aligns with the specific needs of a founder, as not all investors are the same. What many founders don’t understand is there’s no singular ranking of the “best” VC for all types of founders. It’s important to think deeply about what level of support you’re looking for, what specific activities you’d like involvement in, and what kind of relationship you want to build with your investor. My advice is to conduct thorough reference checks on potential investors (mainly with founders they’ve backed), understanding what other founders sought in their founder-investor relationship, and how the investor in question delivered based on those expectations. Some founders may prefer a hands-off investor with a large personal brand, others may want specific help planning their GTM motion and intros to key customers. It’s crucial for founders to identify what they need from a VC, and reevaluate these needs at each funding round. [Amy Saper, Uncork Capital]

[hunter: So true, especially at early stages of a company. I also believe that many VCs aren’t incredibly self-aware about what type of founders they’re best suited to work with – either because they don’t want to ‘disqualify’ themselves from any portion of potentially successful outcomes; not many venture firms provide great mentorship, feedback, 360 degree evaluations; and the dynamics between founders and their investors often don’t allow for honest open conversations.]

Another five to come soon!