Somehow the world seems to be spinning faster these days than just a few years ago. The frantic pace of technology cycles, the amount of tech news, the blogs, the conferences, the demo days, the announcements, the fundings, the IPOs. It’s exhausting. Perhaps unsustainable.
It got me thinking about the advice that I often give to new VCs. For years I saw myself as the new guy in VC but then you wake up one day and realize that 50% of your peers have been doing it for less time than you and time has moved on.
Any longtime readers of this blog will know that I often try to simplify complex ideas into a simple parable that is easier to remember to set the tone of one’s behaviors. Lines, Not Dots. Attitude over Aptitude. Building Startups for Basecamp. And so forth.
So the advice I’ve been giving many VCs from my experiences is that “in VC it’s important to play offense, not defense.”
What do I mean?
Defense is when you react to others. It’s inbound. It’s responding to somebody else with the ball. As VCs we’re inundated with emails from founders, friends, colleagues, angels, seed investors, VCs, law firms, venture banks, corporates and so forth with their favorite deals. So this becomes your dealflow.
Anybody who has worked in venture can tell you that if you took every intro that came your way you’d simply spend all of your time in meetings reviewing new deals sent to you. But new deals sent to you are discovered. They are known. They are seldom sent just to you. To be clear – almost all of the great deals I’ve done started with an intro. But if you spend ALL your time in reactive mode you don’t save enough time to think. You won’t be open to new ideas, new sources of deals, fortuitous meetings, new relationships that can yield results down the line.
I’ve written about the topic that I care about the most – “proprietary dealfow” and if you don’t have that you don’t have a real venture game. That was one of my most read posts and I believe is a great lesson for all investors to think carefully about your sources of deals.
Before skimmers race to the comments or Twitter to complain – I’m not saying intros aren’t valuable – of course they are. What I’m saying is that you can’t spend all of your time in email working your inbox. You need to say “no” faster to things you know you’re not going to fund based on fit, focus, geography, quality of concept, conflicts with portfolio. The temptation in our business can be to “take meetings.”
And then there are incubators and accelerators. They all want you to come meet companies. They want you to attend demo days. They want you to fund, fund, fund. Every deal is great. Everyone is moving fast. It’s prepackaged, spit-shined and glossy. Going once, going twice … Think I’m exaggerating? Consider what Paul Graham said in this article
“There are two things that people grumble about Y Combinator that are actually compliments,” …
One is that Y.C. start-ups are overvalued…
The other thing they say is that they can’t tell on Demo Day which are the good start-ups. Well, it’s not because the good start-ups look bad; it’s because the bad start-ups look good! Which means we’re doing our job.”
These are actual quotes. The only conclusion one can draw from this is that if you start your investment analysis at a YC Demo Day, you are perhaps best reminded of the famous quip about PT Barnum.
So while I don’t blame people who run accelerators for doing their jobs and promoting their companies – if I’m seeing this deal on your demo day it’s as picked over as XXL sweaters on December 26th. Hardly being on offense.
So I have a rule on accelerators. I’ll happily visit and I often meet great teams. I’ll go as long as it’s not on a demo day. I don’t want any formal pitches. And when I’m asked – as I invariably am every time – “What are you looking to invest in?” I say, “Relationships.” That’s all I want. Meet a few new smart teams doing interesting things and a chance to get to know those people over time. If I am in town during some accelerators demo day I’ll gladly swing by and hang out for a bit. Fortuitously looking to strengthen relationships with people I’ve met before. I’m more hallway than main hall.
Many new VCs I know fall into this reactive trap. Their dealflow is angels or seed investors pitching “their best deals” to you in emails. They usually have strong networks to begin with so suddenly you’re hit up by everybody you know who has a friend. You want to build your network with other VCs so you go to demo days, SxSW and so forth. But every pitch you get wants a follow up and you take a certain number of second meetings and your defensive crouch gets even tighter.
How do you move things on to the offensive side of the field?
In my view it’s by freeing yourself up from email for a bit. It’s getting out and building university relationships and carving out enough time to build real relationships with people who spot technology developments and knowing that it might take 3 years until it yields a single interesting deal. Play the long game.
Offense is spending enough time with product and engineering teams at prominent startups and building relationships with the teams that may leave in the next 2 years to launch their own startups. It’s why people talk about the PayPal Mafia, the Facebook Mafia, the Salesforce Mafia because these teams eventually want to do it themselves. You need the call before they’re thinking about leaving. It’s not going to yield a deal this quarter.
Run your own events. Become your own ring leader. Be the center of your knowledge space or geographic community. Invite influencers and tech people to salon’s to have discussions about topics of interest. Nobody is pitching a company that needs funding – they are there to build relationships. You get to hear how people think and interact with each other. You’re the person bringing people together so your value as a “market maker” should be apparent to those in the room. You have time to follow up with those you enjoyed hearing from the most because you’re not chasing every deal sent your way.
I offer you one obvious example: Look at what David Hornik has done with The Lobby Conference. Think he isn’t beloved by every entrepreneur (and spouse) who has had the pleasure of being hosted at his event? Think he lacks for high-quality deals? He simply changed the field all together.
When your favorite angel or seed fund sends you their next deal why not try my line, “I’d love to work on a deal with you. How about this – let’s look at one together! If you spot something I’d be a good fit on I’d love to come in at the same time as you and go help build it together.” It’s not that I don’t take downstream deals – I do. But I always prefer that I’m aligned with somebody who wants to do a deal with me and if we’re looking at the first check together we’re on the same team. Same objectives.
Offense is spending time thinking about a theme you care about, doing research and then trying to meet every major company in that category. It could be virtual reality, online video, bitcoin, payments systems, mobile gaming, mobile security, agriculture technologies, drones, MOOCs, whatever. Hopefully it is in an area where others haven’t been overfunding for the past 3 years or you’re already on defense by default.
Offense if being known as a thought leader in a narrow tech market so that focused deals start to come to you because everybody in that category feels they want to debate it with you.
Summary: You don’t need to see every deal. You don’t need to have FOMO – it’s OK to miss a deal. The next one will come along. Every minute you spend on defense takes away from your time on offense. And of course you can’t win a game by playing a bit of both positions. But in today’s fast-paced world my observation is that as VCs we don’t control the ball as much as we should.
(Cross-posted @ Both Sides of the Table)