Hitting Your Stride
I met with a friend who was in town last week. He told me he had "hit his stride" as an investor in the past year and a half. He is a former entrepreneur who became an angel investor and then a VC. I had a similar conversation with the Gotham Gal on a long car ride yesterday afternoon.
In listening to both of them, I heard something that I have found to be true in my own experience. It takes time to learn how to be an early stage investor. You have to make a bunch of investments and learn from them. And you have to develop a strategy, a thesis, and your own differentiated style which people can then attach to you. In effect you have to build a brand and become known for what you do and how you do it.
None of this happens overnight. I think it took my friend about four years to hit his stride. I suspect it took the Gotham Gal about as long. Part of this is that is how long it takes to know if you've made a good investment or not. You might know in two to three years. But by four years, it is going to be pretty clear. As these outcomes start coming in, you can start to see what is working and what is not.
And "what is working and what is not" is not just about your investment selection. It is about the fit between you and a certain kind of entrepreneur and a certain kind of target market and a certain kind of business model. Some investors are better at investing in SAAS companies. Some are better at investing in e-commerce. Some are better at investing in mobile apps. Some investors are better at working with teams that need a lot of help. Some investors are better at working with teams that don't need any help and want you to get out of the way.
It is important to figure out who you are and where you fit in the startup economy before you can become a good investor. But once you do that, you can "hit your stride" and start investing with conviction.
Conviction is one of the most important things entrepreneurs want to see in an investor. The overhead of working with an investor who lacks conviction is just too much for an entrepreneur. It can become a major drain on them and their company. I'd rather have conviction and be wrong than have doubts and be right. Because the latter doesn't work in a relationship with an entrepreneur and you are likely to lose anyway.
So for those just starting out in a career as a venture capital or angel investor, I would suggest that they take their time, be patient, and build a portfolio slowly and deliberately. And pay attention to what is working for you and what is not. Over time you can build an investment thesis that works for you and that you can become known for. That is when you will hit your stride and when you can step on the gas.
True for starting a company, too.
I suspect this is true for many things
I’ve heard a saying before that it takes “5 years and $20 million” to become a VC. Meaning you have to spend 5 years losing $20 million in order to learn the ropes. I’ve been trying to figure out what the analogy is for angel investors – I think it’s more like 5 years and $1 million. I have been angel investing seriously for about 6 years now (although I made my first angel investment about 10 years ago) and I also feel like I’m just hitting my stride. I know what I’m looking for (email deals and Austin deals), what I’m not, how I can help, how much to invest, how to manage my relationships. And I’ve developed my own deal flow – other people know what I like and how I can help and send the right people to me. I think it will be another 5 years before I really know for sure!
Sounds like you are in your zone now.Reminds me of Gabe’s post on the same topic http://www.gabrielweinberg….
One of the things I did earlier this year was go back and read all of Gabe’s posts from start to most recent (actually because of some advice from Gary C.)…when you do it that way, you *really* see the evolution of his thinking, his product, and his investment decisions…super interesting (and helpful for the rest of us still trying to figure it all out)…
“Conviction is one of the most important things entrepreneurs want to see in an investor. “In all my conversations with investors, I would say that this by far trumps other factors like portfolio fit, experience in the space, geography, or check size. Everyone I’ve ever spoken to splits hard into either “I totally see your vision, and I believe that this could be a really big thing” or “I can see that you are building a solid business, but it’s not grabbing me by the short and curlies”.The only people you want to partner up with are the ones whose eyes go wide when they realize what you’re really doing and will pour on every bit of fuel they have to make it go to the moon.
Totally agreed, and seeing it from my own experience with investors.
Great to find/hit your stride, but also important to not rest on your past success…used as a guide, it can be great. Used as a definition, it can be paralyzing…
Yup. I am working on that right now
For you, every fund so far has been at least a certified gold record hit…so the fans continue to pour in and anxiously await/demand the next album…def. a lot of pressure to live up to year after year…but so far the concerts continue to sell out and you’ve still got it! 😉
He’s fully right to be paranoid. He should be. First it makes things more fun and second it spurs you on and gives you purpose. Dining, traveling, skiing, watching games with Josh, would be much less fun if he didn’t have work pressure and stress.Fred is a professional VC. By that I mean he’s not a person who built a company and decided after hitting success with that one company that it would be easier to be a VC where you can spread the risk over many companies rather than try to become lucky again starting your own. This is not saying that VC is “easier” than other options. Psychologically it can be much harder because you don’t have immediate feedback for your decisions.Your music analogy is correct. The fact that he fears not being relevant and keeping up the success he has had is what drives him I believe I’m sure. In no way from ever reading anything that he has written do I get the idea that he would ever rest on his laurels. Not only would that result in an ego hit of tremendous proportions but life would be very very boring. So being a VC, like running a company, can be whatever you put into it. Which is why someone needs an investor with conviction if my interpretation of what Fred said is correct.
Not sure that’s exactly right. But I appreciate you saying that.
What an interesting comment. I can read a lot into that. For example: what worked two years ago might not be such a great idea now. Skate to where the puck is going, etc. I’m very curious to see how USV’s portfolio evolves….
We don’t have a timeline on usv.com/investments but we sould
I didn’t mean losing faith in past investments, I meant iterating the investment thesis to stay one step ahead of the game.
yes. i know what you mean. and i agree with you. a timeline at usv.com/investments would be useful to show how our thesis has evolved
Yes, I think it would be very useful because the first thing you learn about investing (in anything) is that the rules of the game are constantly changing. So a timeline would be a very graphic illustration of this.
There is so much ambiguity in VC investment decision-making that you have to at least be non-ambiguous in what you stand for and believe in, i.e. the conviction part you reference. Lots of wisdom in this [email protected] once that said “You won’t know anything about the performance of your angel investments until you’ve made at least 20 of them.”
I don’t agree with that. I have made a bunch of angel investments, and know why some are successful and some are not. You need to make more than five, but 20 is a lot and if you follow a good cadence will take a minimum of over five years, probably a lot more unless it’s the only thing you are doing.
There is ambiguity in everything.Investing. Company building. Marketing. Not sciences any of them. That’s why I like them actually!
@awaldstein:disqus Arnold, I fear you overestimate science. Having new insight into science recently, I find it is much less of a science than many think!
Brad is right
This applies to all things in life really. Being a parent. Learning a skill/trade. Even getting accustomed to your surroundings if you move somewhere new. Patterns take time to see and preferences develop over time. The key point is to recognize them, shape them, refine them, and then repeat as necessary.
So true about parenting. I imagine your are hitting your stride right about now.
An ‘experienced stride’ is what experience is in most things.We don’t have answers or lists, we have approaches to tackle problems and ways to organically make decisions.Pundits who state that there are definitive answers are just incorrect on the operational side of building a company. It’s all in the stride which changes with the terrain.
Interesting…yesterday I wrote a post titled …Daddy I want to invest like you…mainly because it took me more than 10 years of investing in markets to hit my stride. my goal of the post is to help people think about it in just one post. That said you cant speed up the experience of writing checks and getting checks back…the cycle of a batch of investing.
“You can’t speed up experience”. +10
You’ve kind of misquoted him. What he’s saying is you can’t speed up the cycle from investment to exit.I actually do believe experience can be accelerated by working on self awareness and reviewing your progress each day. As a wise CEO once told me. Measure yourself in terms of whether you or team improved today. Do that enough days and you will be unstoppable
I realize that & thanks for pointing it out. I tweeted the full length one, ie from check to check. But both aspects are true in my opinion. Experience is not just something you measure.
Dear Howard L – welcome to the 90s – you’re supposed to put an URL in comments like that 🙂 🙂 🙂
have you experienced an element of finding your purpose or a sense of dharma in this process of maturity?
“I’d rather have conviction and be wrong than have doubts and be right”Yes, because there’s a strong element of self fulfilling prophesy about doubting.
I’ve had deals that haven’t gone through and I’ve been happy in that I predicted the outcome by the behavior exhibited by one of the parties. Although having the money is nice, having the right instincts helps you more long term, shows your thought process is correct, and gives you confidence. As long as you don’t change the outcome by your behavior (self fulfilling etc.)Over time if your thinking is clear, you will make mistakes and pass on opportunities, but you will have a greater gain by following a path that has traditionally led to results. This of course varies on an individual level. What works for me might not work for someone else (because they might not be able to execute the finer points to the degree necessary).
as I’ve been reading the comments I’ve been thinking about that quote …so there’s another really important thing to have, in addition to conviction – thats is exponential thinking as discussed by Peter Thiel et al here: http://blakemasters.tumblr….Maybe conviction follows exponential thinking..
Just inspired a post about speeding up experince called ‘Shooting the Moon’ from startup investing to growth investing which covers the cycles I have had to endure to learn and get to the proper conviction and style levels of today http://howardlindzon.com/sh…
I read it and commented on it
“The overhead of working with an investor who lacks conviction is just too much for an entrepreneur.”This is so true, and I’m going to tweet this. And the reverse is also applicable: “The joys of working with an investor who completely believes in what you are doing is very rewarding for the entrepreneur.”
Your post today makes me think about Mark Suster’s post on nine women can’t make a baby in a month: http://www.bothsidesoftheta…Some things just take time.
That is an amazing quote.
its also the most concise and ironic definition of “the mythical man month” 🙂
.Malcolm Gladwell’s 10k hour rule
Don’t know JLM. I don’t think rule is the entirely true. I think it’s 10,000 hours of “deliberate practice”.Experience doesn’t result in someone getting good. Many actually tend to get worse with experience.Then again, what do I know.. 🙂
Yes. That rings very true to me
Before I found your comment here, I was thinking its 10,000 hours + “Know Thyself” = hitting stride.I would argue this since many people don’t know themselves, and I posit that’s another type of 10,000 hours.What say you on this @JLM:disqus ?
USV definitely proved the validity of early stage “show me the traction first” investing. I think it based on the understanding the difference between validity and reliability. If someone who is 200 pounds steps on a scale 10 times and gets readings of 15, 250, 95, 140, etc., the scale is not reliable. If the scale consistently reads “150”, then it is reliable, but not valid. If it reads “200” each time, then the measurement is both reliableand valid. USV has shown that the when it comes to early stage investing “traction of highly engaged users” is a rock solid “valid” metric to investing in startups that can hit the magical 1,000,000 user benchmark and that the expected value of the hitting this benchmark (the 200lb reading) much greater than the loss of investing in the startups this miss this mark. This is a Validity game, Validity trumps Reliability (which makes it a little harder for us entrepreneurs).
Do you think, as an investor, the converse can also be the case, that you can lose your stride too?
You can. Markets change. You need to adapt. Or, markets change and you have no resources to adapt.
I think that’s right
Yes. I worry about that a lot.
This reminds me of the 4 stages of Competence along the learning process. 1. Unconscious incompetence2. Conscious incompetence3. Conscious competence4. Unconscious competenceSome say there’s a fifth stage – Complacency, when 3 & 4 mix.
@wmoug:disqus Where do these 4 stages come from? I am not sure I agree on their order, but still curious to hear more.
Ah, it’s a known framework. Can u google / wikipedia it? Think of when you learn something new like flying or a language or a skill.
I’m not sure if this will help. http://www.alearningaday.co…I’d attempted explaining it with Federer and Nadal analogies.Might make sense if you have watched a bit of tennis. :)@wmoug:disqus
Thanks @rrohan189:disqus Fleshing the idea out does make more sense.
Your second to last paragraph is a gem. It is one of the best you’ve written this year. It really struck a cord with me. It is right in all things, but especially in the overhead it takes to work with somebody without conviction.
I almost took it out because it felt like a bit of a distraction from the hitting stride point but then left it in because it was a stronger point than anything else in the post
Glad you left it in, Fred.
Conviction is paramount but it’s not unconditional. Both investors and entrepreneurs have to work to continually instill conviction in each other.
But in this context, conviction should stand the test of time and the regular challenges entrepreneurs face. If it doesn’t, then maybe it wasn’t strong enough to begin with.
You’re right William I agree in this context.
To me, this post reads as a general life-reminder that it takes a lot of effort, toil, and trial to be decent at anything.I started writing music and lyrics seven years ago, after reading a book on music theory. For the next four years, I wrote about three-hundred bad songs. I didn’t mind, though, because even when you write bad songs, if you love what you’re doing, you’re still having fun and you’re still learning. I shared the underwhelming tunes with a small group of critics and just kept pushing forward. It was only in that fifth year that I started sounding anything like an actual musician or composer.Now, I’m reading a book on screenwriting to try to tackle that hobby. I got discouraged recently, wondering if it would take me four years to create any semblance of a decent screenplay—I didn’t think I had that kind of patience anymore. Then, I finally realized something: understanding one thing helps you understand other things more easily.It might still take me 24 months to crank out a worthwhile screenplay, but my laborious investments in songwriting will pay dividends in this new pursuit. That is, the learning curve won’t be quite as high—and that’s a good feeling.The point I’m trying to make here may seem wildly obvious to all of you, but it took me awhile to grasp it. And now I’m posting it here as a bit of personal therapy. Thanks, Fred.
I love your comment Max! Keep going on the hobbies – that feeling of learning and building skills is amazing and addictive isn’t it?
Thanks so much! Few things are more rewarding than getting through the mud and sludge of any skill and, one day, feeling that inexplicable—but constantly slipping—sense of comprehension.
It takes most people around 7 years of dedicated effort to master anything. Screenwriting (which I did professionaly for 15 years) is no exception.
I don’t doubt that, Peter. To be clear, I’m just saying that I can apply certain learnings from songwriting to screenwriting. The overlap, however small, helps.
Btw, I’d love to Skype with you sometime about screenwriting. My email is max at maxyoder.com if you’re interested. Thanks, Peter.
Happy to help. If you want the one liner best bit of advice I know it is indeed very related to the subject of this post – focus on a specific genre and learn it until you know it cold. Pro screenwriting is about genre. 🙂
Great comment, Max. How many talents do you have? (I’ve heard at least one of your songs — loved it.)Impressive that you are taking on these new challenges. I’m all for achievement (it’s one of my Strengths Finder themes) but whether or not you become a great screenwriter (and you probably will), I think that a huge part of the benefit is the person you are discovering/becoming as you learn these new skills — or hobbies as you call them. I have a novel (manuscript) tucked away that still needs a ton of work. I will pull it out again someday and polish it off. Even it it is never published, I am a different person than I was before writing it — more “me.”BTW, looks like I will be in the Midwest more frequently in weeks to come. Hopefully, we’ll connect.
Donna, I couldn’t agree more about the self-discovery that comes with hobbies. Self-awareness is one of my favorite traits to find in other people, and I think these ventures help me slowly sharpen my own.Keep working on your manuscript! 100 words a day keeps the writers-guilt away. You’ll never regret that you spent time doing something you truly enjoy. I finished this book not too long ago; it’s worth a read if you’re interested: http://www.amazon.com/Plot-…Let me know about the Midwest. Either way, I should be in LA in two weeks, so I’ll keep you posted!
I took me a while to realize I was on the right path. Whether, in the mortgage, advertising or fight industry, it all brought me back to video production.
“hitting ur stride” is a sports term, much like “in the zone.” Formulation is often the key and most frustrating part of life. What works for a while (sometimes a long while) won’t work 4ever, that’s why it’s called life.I’ve found that most aspects of one’s life or even in sports comes down to basics, which must be learned NOT taught. For instance, every parent tells his kids that balance is an important part of life, but it takes a while to really understand what that means.The problem with formulations though is variables. The variables keep it interesting. It’s funny with conviction though, one person’s conviction is another’s arrogance.
It’s one of the reasons I spend so much time mentoring at Techstars, 500startups and advising because it gives me a chance to build that thesis and methodology, and watch folks way more experienced then me make investment decisions. I find myself saying no much more often, and being very clear as to what types of founders and startups I can be helpful with and how I can be helpful. I have been doing this about 4-5 years now, and the value I bring today is 100x of what I brought in previous years.
Micah, nice to see you on this thread. I’d love to see you in the AVC comments more often.
“Over time you can build an investment thesis that works for you and that you can become known for.”I would guess that the success and failure that one has with their early investments creates quite a bias as to what you are willing to invest in later. More than it should.It is people’s nature to try duplicate signals of past success, and avoid signals of past failure, as if they are absolute indicators and thereby give greater credence to those indicators. (People do this with dating being very trigger happy when meeting someone that shares a quality or habit that was exhibited in a failed relationship. )So maybe you had a particularly good investment as a result of dealing with a certain entrepreneur so when you are making an investment now you place a great value on that quality that you see many years later. Maybe an entrepreneur who failed golfed every Wednesday so you now have a negative association with that habit and take points from any entrepreneur that states that they golf on Wednesday.Now of course much of this is necessary and a way to quickly summarize a situation and learn from it. Patterns. But when starting out you are least able to know how to weigh each factor that contributes to a team (or an ideas) success. So looking at what works years later means you could be starting with incorrect data to begin with.(That said I always go with my gut which is based on my past experience.)
This is true for most things in life.One of the joys of being a latebloomer is that you realize it takes a lot of time to become, well, you. You can’t force yourself to be something more than what you are already. Discovering who that person is takes time.
ok – excellent post – thank you – quick note to self “look ..for ..VCs ..are ..convicted” – got it! ;)like the last paragraph too!
I’m coming up on my 3rd year as a VC. 10 investments into this I don’t pretend to have hit my stride yet. Still, I do think conviction comes in many shapes and sizes.As a seed investor my business is to make a lot of small bets. From there I double down on the ones that I believe represent truly extraordinary opportunities for our fund. Do I lack conviction by not betting on the others? I would say not. Our strategy is to invest between concept and validation. And the goal of our seed rounds is to get that validation.Conviction in the absence of data is just hope. And if you keep investing even though the data and experience should tell you otherwise then you’re sending good money after bad.Success is never a straight line. And we have followed on in businesses that were far from hitting their milestones because we knew there was something there. That definitely is conviction. But you can’t have a policy of just blindly following on until the entrepreneur gets results. That’s what the industry did in the past and it did not work out well. Conviction and investment discipline are not mutually exclusive.
I think you need an investor who believes in the direction of your “long roadmap” and that the destination is worth getting to. We can go to the mat during the ride about how best to get there, but “draining” is the right word if i have to constantly relitigate destination and basic direction.
For a fascinating interview seeing the evolution of a successful investor – Chris Sacca – see:http://www.youtube.com/watc…
One thing I like to do (which I learned when I worked at Bessemer) is to write a memo to myself about why I’m making each investment. It is easy as an angel with no LPs to just take a bunch of fliers and this adds some rigor. Also, that way you can go back later and assess. Without writing it down it is very easy to do after-the-fact analysis that is distorted vs the information you made your decision on at the time.
We do that. But we publish it publicly on usv.com. I think its a great practice whether you do it privately or publicly
I like that idea a lot.
A friend was once helping me with a project. He asked me, “What does victory look like to you? How will you know if this project is a success or failure?”I rattled off a few metrics that I was hoping to hit, and he told me to write those metrics down. He said, “It’s easy to convince yourself that you’ve failed or succeeded after-the-fact if you don’t concretely outline what failure and success look like before you start. Always write it down.”That guidance has stuck with me.
Related to this, I’m curious to read what Fred and the community think of this post, “Why Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway” (Hat tip to Geoffrey for this piece).
Do you have a link?
I included a link there, but I guess it didn’t show on your device — let me know if this one shows: http://techcrunch.com/2012/09/30/why-angel-investors-dont-make-money-and-advice-for-people-who-are-going-to-become-angels-anyway/. Edit: just copied you the link via Twitter as well.
It does. Thanks
“…only about 20 firms – or about 3 percent of the universe of venture capital firms – generate 95 percent of the industry’s returns…”
Its a good post. Andy makes some great points. But I am not as bearish as he is.
So, how do the 97% survive on a 5% share?
Hopes and dreams
Andy mentions in the article: “Those premier venture firms succeed because they have proprietary knowledge of the characteristics of winning companies.”Since you are among the “premier VCs”, do you have any idea what kind of “proprietary knowledge” he could be referring to? I always figured the best firms continue to dominate because they get a few big success stories in the beginning, then it has a snowball effect where they are then able to attract the best entrepreneurs and employees to keep it going.
That part makes no sense to me. We don’t have anything proprietary other than reputation.
What advice do you have for entrepreneurs raising from angels who are in Yr 1/2 of investing? How should the pitch approach change vs. raising from someone who has already “hit their stride”
Get a mix of both if you can
Interesting perspective thanks!
An angel investor hitting his stride in a bull market. Skepticism.
Its not a bull market. That ended six months ago.
FB S1 filed 1st February. IPO 18th May 2012.
that was part of the ending but not the cause
the part about conviction is 1000% right
Made me think of one of my favorite quotes: “seldom wrong, never in doubt.”
for me its “often wrong, never in doubt”
I love the focus on conviction. It is absolutely liberating for an entrepreneur to speak to an investor who is not riddled by uncertainty, but either shares your view on the world or doesn’t.
“when there’s doubt there is no doubt”.
Great piece. It reminds me of the axiom that I may not be right, but I’m definitely not confused.One has to have a coherent narrative that drives them and a conviction that it’s the virtuous path.
The same is true for entrepreneurs. It’s starts with months / years of not fully knowing what you’re doing, being stubborn and persistent, mindfully observing what’s going on and reacting to it, learning. And then it clicks, then it becomes clear you understand something no-one have before, then you can ride a wave of “knowing”. So it seems that as long as you’re (1) smart, (2) strategic and simply (3) not give up long enough, you are likely to hit your stride. My experience tells me that (3) is probably the most important part of the equation for entrepreneurs.The similarity is even more obvious when you realize that entrepreneurs are VCs and VCs are entrepreneurs. E are VCs because they invest their (valuable measured in professional opportunity cost and personal cost) time, energy and reputation into something that has low E(X). And VCs are E because they place bets, take challenges, hustle equally hard, they recruit teams and essentially run businesses.
Great comment Ela
It’s really odd though sometimes you know within a few strides that you are heading to the end zone. It will take a lot of time and effort but in your bones you know it’s gonna happen.I’ve had that feeling 2x and both happened.
or in Umairs words:there is a difference between screwing up and f**king up. Be the latter all day, you will learn and get better. Be the former – you are wasting your life.
I would have thought that was impossible. But I am seeing it happen regularly these days
I would guess most likely with a partner that isn’t 1st time…or at least with a successful track record having worked for others in the field (ie. see the other Charlie’s history along this route at http://thisisgoingtobebig.com )
Isn’t it a sign of a bubble or irrational exuberance when that type of diligence goes by the way side?
Hi Fred – I seem to remember you saying in one of your posts (or maybe audio) that the first fund you raised (with flat iron?) was a “pledge fund”.Any chance you would write more about that process and experience? (or correct me if i’m not remembering this correctly).
I’m seeing LPs remain thoughtful and cautious when it comes to allocating to new managers. Not all LPs are the same, however. They differ in their tastes, risk appetites, and due diligence approaches. Institutions are probably the least likely to allocate to new managers, unless the manager is spinning out of a brand name firm with a great track record. Family offices and high net worth individuals seem to be more open to investing in new managers, but even they want to see a manager’s first couple of deals before pulling the trigger on a commitment.
indeed……there’s so much free money being injected into the banking system speculation will continue to be rampant.
Its not a lack of diligence. Its an abundance of confidence
I had not heard that term. I will read up on it. Thanks!
I will do that
Yes, that’s an astute correlation- An abundance of confidence lowers the barriers of diligence.
“Powered by DISQUS”I love Disqus! Did you hear that Fox news has ditched Disqus for….for….LiveFyre?!
They will be back
I’m not sure because they are using LiveFyre comments 3. Disqus still beats them, though. Guess it is good to have some competition.