Like many in the venture community, especially us newer investors, I enjoy Fred Wilson’s “process” posts, where he shares a POV on the practice of our profession. Even more than his answers, it’s his questions I find so valuable, because those questions are universally applicable while his answers might differ from my answers, just as USV and Homebrew are different. But asking myself Fred’s questions clarifies my own approach.
In his recent entry “Time and Money,” Fred covers the relationship between the two in working with, and supporting, a company. Like we do at the seed stage, USV almost always plays the role of “lead investor.”
He writes: “Time is a valuable resource for all parties and it should be a factor that both sides include in the deal making analysis. But it often is not.”
And later: “The truth about these situations is a few seed investors will massively over deliver and the rest will massively disappoint.”
And finally: “If one has time to evaluate the time commitment issue as part of an investment process, it becomes a bit easier for both sides to get this right. A rushed financing makes it harder and can lead to miscalculations on both sides.”
All of this resonates with me and I see it every day in our deal-making and deal-servicing. How we wanted to spend our time was actually one of the very first things that Satya and I discussed because we believe multiple fund model decisions flow from that clarity.
- We spend 51%+ of our time with our current portfolio – that’s what it takes to deliver against our commitments to the founders we’ve backed, and they are always our priority. I’m suspect of any early stage lead investor who isn’t willing or interested to spend the majority of their time with their companies (even though I see them pretty frequently in the market). It also means we don’t invest in people we don’t want to spend time with, even if it could be a profitable investment.
- Invest at the seed but don’t disappear at the A – we continue leaning in to support a company operationally until at least the Series B (this includes sitting on their Board, setting aside weekly/biweekly time to help them and their management team, riding the ups and downs with them to help the CEO grow as the longterm leader of the startup). After that milestone we move from the Board Room to speed dial since we know the company quite well by then and they have a Series A and Series B investor at the table. We’re not a “stay on the Board until the end” firm but we are atypical for seed stage funds who more typically don’t take Board responsibilities and step off at the A.
Some venture friends goodnaturedly tell us we work too hard for our ownership (or maybe more specifically too long, since we don’t just pass the company to the Series A lead and say “good luck”). For us that’s a feature, not a bug – we really enjoy getting these startups to a stable foundation, enjoy seeing them scale and grow. And because it benefits them, we believe it’ll payoff in our returns and reputation.
- We spend time on investments where we won’t make money – this isn’t unique. Almost all of the investors whom we respect *will* throw “good time after bad” because it’s the responsibility they have to the founders, because helping a company land for a .5x-2x return can help a portfolio vs just taking a 0x, and because it’s where you earn the reputation that will help get you into the next 100x opportunity. So like Fred says is his post, you try to judge how much time you can or should spend on an investment but there’s always a floor above 0, no matter how hard the situation has become.
Your fund can be any size but your time is limited by physics. Being intentional about how you commit it over multiple years and multiple companies is ultimately more important than ownership targets, reserve ratios or carry structure. And if you start with a service mentality – that your primary obligations are to your founders – you’re starting off with a pretty good true north.