What I Learned in my First Year as a VC
All Things Venture #077
Education has always been an important part of my life. My parents basically ran our household in a way where as long as I had good grades, I could do whatever I wanted. If I didn’t have good grades though? They’d be on my ass. And I’m talking lock me in my bedroom, instill the fear of God, you can come out for dinner but nothing else on my ass-ness. Luckily for me, their militant educational approach worked out sooner rather than later. I actually liked school, I enjoy learning, and this first year working as a VC at FirstMark has been basically a world class education in understanding what it means to be an institutional investor. I wanted to write this post to reflect on this past year, to memorialize this moment as a guidepost for years to come, and offer a little bit of the inside baseball I’ve learned in my first year. As always though, let’s dive right in.
VC is a Sales Job - About three months into the job at FirstMark, I was at home for Thanksgiving and my grandparents were in town. I was explaining to my grandma what my new job was, and she deadpanned asked/kinda told me, “So you sell money huh?” It was in that moment where the first light bulb went on. Yes, being a VC means that I am an investor, but it also means that I am a salesman and that the main product I sell is money. If you have any intentions of being a VC, it’s important to know that selling is a critical skill set, and will occur in almost every aspect of the job. When you are trying to convince a founder to choose you over another investor in the ecosystem? Sales. When you are coordinating with the other GPs at your firm to raise a new fund? Sales. When you are helping your portfolio company land their first enterprise customer? Ding, ding, ding - you guessed it, sales. If you cannot sell in VC, you cannot win. Winning deals in VC is the gating function to returns, and consistently delivering returns in VC over time, in my opinion, is the gating function for success.
And a People Business - One of the questions I got asked in the interview process was, “how would you source new investments from your network?” Which is effectively just a professional way of saying, “WHO DO YOU KNOW?” The world of venture is surprisingly social. Every week, if you live in New York or SF or any of the other tech/tech adjacent centers of the world, there will be events. There will be meet-ups. There will be happy hours. Why? Because category defining companies aren’t built in isolation, they require an early cohort of believers who are living in the unevenly distributed future. If you boil any of the critical functions of a startup down: the product vision, the sales processes, the recruiting motion, fundraising, marketing, whatever - they all come back to people making the best possible informed decisions they can. As a result of that, startups are absolutely ravenous for the best possible people and that’s where/why you’ll hear about breakout companies having incredible “talent density” early on.
Appreciate, Study, and learn from History - There’s a famous quote, attributed to Mark Twain but debated in accuracy, that is widely cited and covered by investors that goes “History doesn’t repeat itself, but it does rhyme.” When I first got into venture, I wasn’t focused on history. Most of my mind was focused on answering the question of “What’s next?” While I firmly believe a large component of being successful in venture is having an overwhelming belief in the possible (I talked about this in my last article, Default Optimism) I also feel confident saying I will have no advantage predicting the future if I do not have an understanding of the past. In the context of Venture Capital’s recent history, the past means companies like Google, Facebook, Salesforce, Amazon, and Uber, or Veeva Systems, Procore, Atari, AvidXchange, and Toast. The past also means product launches or events like AWS launching in 2005, the iPhone launching in 2008, and the app store launching in 2010. All of these companies were venture backed bets that have unique historical contexts that gave rise to their respective successes. Some are household names. Some are less well known or reported to the general public. In any event, they all matter and they all contribute to the potential historical context an investor can have when making a multi-million dollar investment decision in the face of little to no historical data. They are the existing drum line of history that the future will rhyme against. They are the living history of innovation.
You Need to Develop an Edge - I have a mentor who is a senior banker at one of the usual suspects (i.e GS, MS, JPM, etc). He’s someone who helped me navigate the early days of being a VC, and he sits in a market facing role. He’s someone that manages a P&L on the order of tens of millions to hundreds of millions of dollars. He was the first person to tell me, that as an investor, I needed to develop an edge. Tbh, when we first talked about the concept, the concept of having an edge, I didn’t understand it. To that point I had developed my early career around being a generalist, someone who knows how to get shit done, quickly, proactively, and precisely across a wide range of things. The challenge is though, as an investor, everyone can do things quickly, proactively, precisely AND there is a limited set of investable opportunities on a yearly basis. Said another way? Competition (in any investing seat, not just venture) is too high to survive alone on a generalist skillset in your early days. Developing a deeper and sharper edge, is one (of many) focuses that I have in the years to come, and it relates to one of my next learnings of this past year which is…
If You Ain’t First You’re Last - The enduring wisdom of the inimitable Ricky Bobby, as strange as it might sound, applies to investing. Let’s set up a hypothetical scenario. Let’s say you develop an edge. Let’s say you become an expert in quantum computing and have a view point on where the world is going. You know all of the relevant operators, businesses, customers, and have just met with a founder who you believe is going to change the world. You’re excited, your palms are sweaty (knee’s are weak too lmao). You think this is going to be the investment that makes your career; your mythic unicorn that vaults you on to the Midas List with all of the accompanying congratulations, prestige, and attention that it affords. Except, in the final moments of the intro call - the founder tells you he’s been talking to Johnny Appleseed for the past three months. Johnny Appleseed from Birchwood Capital? Johnny Applessed the guy, who knows all of the same operators, businesses, and customers as you??? Johnny the guy who’s sometimes friendly, sometimes a collaborator, always a competitor Appleseed?? Johnny Appleseed??? In that scenario, of investors of equal caliber, access, and intelligence there’s only one person you’d rather be. Be first.
The VC World is an Onion - The VC community, in the grand scheme of things, is super small. I originally thought about describing the VC world like high school, where everyone knows each other and cliques form and there can tangibly feel like there are people who are on the “in” and people who are on the “out.” But in reality, I think the VC world is honestly more like an onion. There’s a surface layer, and then there’s successive layers of depth to the business where connections, relationships, and access are much more ingrained, institutional, or personal than on the surface. In a world where access to information and the speed of information are critically important, than it makes sense. Everyone in a given ecosystem (and at a given level) most likely does know everyone, but the depth of those relationships is magnitudes more important in my opinion. The layers of connection, not the presence of connection is what matters. Layers > Presence, remember that!
Things are Always Changing - In this seat. No two days are the same. Things pick up as quickly as they slow down. Startup valuations can become unhinged from reality, or they can seem in line with public comps. The thesis you are diving into may get wrecked or enabled (hello Durbin amendment) by regulatory action, excessive leverage may pop a credit bubble in an asset class (ahem, crypto) you’re bullish on. A key employee can quit, a customer can go under, your co-founder can have a change of heart. All of these things can, will, and do happen in the world of venture. There is no antidote, there is no panacea. There’s just commitment, vision, and execution day after day after day and each day will be slightly different from the last.
Hope you guys enjoyed this article/reflection. If you feel like this could help someone who aspires to work in venture, feel free to send it along and also don’t hesitate to subscriiiiiiiiiiibe, to read more posts like this!