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Top 10 investing habits of successful VCS

老雅痞

22-08-02 10:00

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Article title: Top 10 Investing Habits of Successful VCS

Source: Old Yuppie

This article is from wechat official account:Old yuppie

If you only have a few minutes to spare, here are ten lessons from great venture capitalists that investors, operators, and founders should know.

- Come prepared

- Think from first principles

- Value extraordinary ideas

- Think of investments as products

- Provide real empathy

- Relative to the size of your beliefs

- Adaptation opportunities

- Develop a sense of time

- Global Search

- Tell the hard truth

There is no single way to be a great venture capitalist. Some companies succeed by moving quickly; Others rely on deliberation. One fund might regularly back the hottest startups in the market, while the other invests in companies that are out of favor.

All this is to say that one man's "timeless wisdom" is unlikely to resonate universally. Indeed, part of the intrigue of the big firms that study venture capital is to discover different ways to compete. Funds like Union Square Ventures, CoatuManagement, Multicoin Capital, DST Global, Y Combinator, and Tiger Global might be chasing the same company, But it often seems that they are engaged in different activities. Studying them helped me build my new fund, Generalist Capital.

In today's article, we'll revisit these different franchises and dissect what I think are valuable lessons. At the very least, I hope they inspire new thinking as you invest in or build your own great business.

Learn how the best businesses and investors win.

1. Come prepared (Coatue)

As the euphemistic philosopher Seneca said, "Luck is a combination of opportunity and preparation." The crossover fund Coatue Management embodies this characteristic. As outsiders in Silicon Valley in the early 2010s, the Laffont brothers had to find other ways to prove their prowess.

One of their most effective weapons is to run an outside-in diligent process -- researching a business in depth before meeting the founder. This approach has helped Coatue reach companies like Snap, Lyft, and countless others. While it's not always appropriate to do a "reverse sell" -- especially in an early round -- learning as much as you can before everything starts shows interest and understanding of the problem the startup is solving. It also helps push early conversations beyond the mundane and toward more meaningful discussions.

2. Think from First Principles (Multicoin)

Venture capital is often criticized as being driven by FOMO. Rather than looking out for themselves, the skeptics argue that investors are simply following social signals and fighting to get into the "hot" rounds for the sake of it. For some managers, the fact that Sequoia or Benchmark are leading investments is proof enough -- without much more thought.

Borrowing from another company's beliefs will prevent you from developing your own, and may not even be able to find truly outlier investments. Multicoin Capital is a good example of a fund that operates on first principles. Throughout its history, Multicoin has developed its own arguments, which include many that run counter to received wisdom. When the crypto ecosystem focused on Ethereum, Multicoin became convinced that a high-speed alternative layer 1 was needed. That thinking eventually led to its investment in Solana.

The best investments tend to look crazy to the rest of the market. The only way to find them is to do your own evaluation and think from first principles.

3. Value Unique Ideas (USV)

Venture capitalists typically say they invest in people, not ideas. Such people argue that the uncertainty inherent in start-ups means it is foolish to attach yourself too much to an idea. Instead, support a builder who is good enough to experiment and iterate to achieve a strong product-market match.

For example, if Butterfield tells you he's going to develop a new video game, it's probably impractical to question its exact mechanics. Instead, you just have to trust someone like him to build something of value - even if it's an enterprise messaging service like Slack.

Union Square Ventures doesn't insist. While the New York-based company values founders, it is willing to back atypical entrepreneurs with special ideas. Twitter, Etsy, and Tumblr were all founded by founders that many other venture capitalists rejected. USV sees through this and recognizes the uniqueness of the business being built. This idea, more than anything else, is important.

It's almost a Silicon Valley formula to say that ideas are cheap and execution matters. But companies like USV show that it's not that simple. While great founders and great operations play a crucial role in a startup's success, unique ideas can be surprisingly valuable.

4. Think of investing as a product (Y Combinator).

Venture capital is a service business -- but it doesn't need to be just that. Y Combinator is perhaps the best example of a company that sees investing as a product challenge. In addition to its well-known early projects, YC has developed an additional suite of products, including an internal social network, a co-founding matching service, and a recruitment platform. These tools help entrepreneurs solve their most pressing challenges, enabling them to build their networks and recruit talent.

Notably, this field is an adjunct to YC's pre - and post-accelerator program. The result is an entity that invests like a venture firm, but can support a start-up at scale throughout its life.

While the best venture capitalists are good at building real relationships, finding places to support productization can help both the portfolio company and the company itself.

5. Provide true sympathizers.

In some ways, the rise of Solocapitalists is surprising. How can a lone Wolf investor compete with better-resourced funds? Even IF THEY'RE NOT FIGHTING FOR THE LEAD IN A ROUND, SOLOCAPITALISTS ARE FIGHTING FOR SPACE WITH ESTABLISHED COMPANIES.

Prompt action is certainly Solocapitalists. Part of the appeal. The venture capital market has been particularly competitive over the past few years, and being able to make decisions without a multi-partner investment committee has an advantage in winning allocations.

However, Solocapitalists & NBSP; The more specific and lasting advantage seems to be a sense of empathy. Many of the most prominent individual investors have considerable operational experience and may also be running a company of their own. Elad Gil, Lachy Groom, and Josh Buckley all fit this pattern.

Even those who may come from less operational backgrounds are entrepreneurs themselves -- investing in franchises from the ground up. This also makes a difference and has a similar effect. Empathy is valuable in an industry that can feel impersonal.

6. Scale corresponding to your belief (Multicoin)

You should size your position according to your beliefs. Often, this can be difficult -- the companies you may be most interested in are also likely to be the most competitive, so reduce your allocation. But when you believe you've found a winner, you should do everything possible to maximize your stake. Assuming you believe in your ability to pick stocks, doing so will give you the best chance of driving exceptional returns.

Multicoin embodies this feature. The cryptocurrency fund deploys its most important checks into projects that become the biggest winners. Helium, Arweave, Solana, Serum, and Algorand are all projects that Multicoin has aggressively developed and paid off for. In fact, Helium accounted for 11% of Multicoin's first fund -- an extremely concentrated bet.

Where possible, match the size of your investments to your beliefs.

7. Adaptation opportunities (Tiger Global )

Tiger Global has shown considerable flexibility throughout its history. Since its debut in 2001, Chess-Coleman's fund has gone through multiple incarnations. It started as a hedge fund focused on US telecoms stocks, then embraced emerging markets, particularly China and India, and finally venture capital. Like a few others, Tiger Global has proven the value of adaptability, refining its approach to adapt to opportunities.

For nearly two decades, this approach worked well. This year, Tiger Global has taken a beating. Its venture funds reportedly fell by $5 billion in the first quarter, while an announcement in June showed that its hedge funds had fallen by $25 billion. The loss may prove too harsh to bear.

A reduction on this scale risks oversimplification. While Tiger Global misjudged market conditions in 2021, that doesn't erase its good management before then (even if it did erase most of its gains). In the company's darkest moments, we can look at its successful history and find a useful lesson.

8. Develop Awareness of Timing (USV)

More often than not, great timing has to do with public market investors. Those who know when to enter or exit are praised as outstanding managers.

In private markets, timing is also important. Although it is a volatile space, venture investors must develop a good measure. Union Square Ventures has the talent and discipline to do this.

First, the company has shown a surprising knack for timing its investments. USV backed Twitter before social media was a full-fledged category, and Coinbase at a time when most people thought Bitcoin was trivial. Companies like Tumblr and Zynga are further examples of this excellence.

It is also critical that USVs recognize when it is time to exit their investments. It locked in gains before the value of Tumblr, Zynga and Coinbase plummeted. It seems to stem from intuition, experience and a structured approach. "In these pre-IPO liquidity trades, we typically seek to liquidate 10 to 30 percent of our positions," general partner Fred Wilson wrote.

Investors must study market history, develop belief in trends and build a structure for exiting positions to add a sense of timing to their Arsenal.

9. Global Search (DST Global)

DST Global is usually associated with an investment made more than a decade ago. In 2009, Yuri Milner invested $200 million in Facebook at a $10 billion valuation. At the time, other investors put the social network's fair value at between $1 billion and $4 billion.

DST is willing to invest on such terms because its team has an unusual insight into the monetisation potential of social media. Milner has been closely involved in the creation and development of several Russian social platforms, watching how they turn consumer attention into advertising dollars.

This is a classic example of DST using insights from one region to invest in another. Indeed, Mr Milner's fund has grown by first identifying new business models with high potential and then looking for winners in national markets. It has translated its appreciation of food delivery into investments in Gojek, Rappi, Deliveroo and Doordash. DST's interest in online car sales has generated bets on Kavak, Auto1 and Cars24. These investments span countries and continents, but share basic genes. By maintaining such a broad view, DST ensures that it cannot win just once by identifying an intelligent method, it can win many times.

A growing number of great companies are being set up outside America, and funds like DST aim to find them.

10. Speak Up (Sequoia)

One epic fund not covered by the Generalist (yet) is Sequoia Capital. While I will take a closer look at what is arguably the world's most famous venture capital firm at some point, following Sequoia's work and meeting with some of their portfolio companies has provided some insight. One of the most striking features is the company's willingness to tell unpopular truths. Sequoia is outwardly open about the entrepreneurs it supports. It also brings that honesty to the wider market.

A Good example is the "R.I.P. Good Times" MEMES shared during the 2008 downturn, in which Sequoia walked through the economic turmoil and the disruptive impact it could have on venture capital and customer adoption. While the founders could not have enjoyed Sequoia's bleak outlook, it helped many navigate the uncertainty. Earlier this year, Sequoia shared a similar series of presentations with its portfolio, titled "Adapt and Endure." Again, it highlighted the difficulties of the current environment and suggested decisive action.

Honesty may not always be popular these days. But over a long enough time horizon, it is essential to earn the trust and respect of entrepreneurs. Sequoia is very good at this.