Well, it’s been just over two years since I joined Real and hung up my CFO mantle. So far, it’s been a blast. But if you’re not making mistakes you’re not pushing hard enough and even though it may not feel like it when you’re pitching (and getting rejected), VC is about taking risks, not avoiding them. So, I thought I’d look back on my first two years in the biz.
At Real we invest as a team and are each involved to varying degrees in all of our companies. Still, we are each have primary responsibility for certain portfolio companies. Of our 36 investments, 11 are mine. 3 of those have had positive exits already. In making those investments I’ve definitely made my fair share of mistakes.
Investing in things I don’t *fully* understand: My very first investment was in a great company named Fabric Engine. Fabric has built some amazing technology that will revolutionize how pro graphics are made and displayed. But that tech is so vast and works so deep in the technology stack, that my lack of a techie background makes it hard to add meaningful value.
As they grow I will be able to help them with all the common challenges of growing into a valuable company. But in those early pre product / market fit days, I have not been able to do as much as I would like.
Taking too long to act: As a fund we move quickly. 36 investments over 2 years certainly validates that. Still, there have been many deals where I have not moved fast enough. Part of this was just getting used to how completely fragmented your time is as a VC. We very rarely get to spend large blocks of time in maker mode. Our days are broken into 30 or 60 minute chunks, each with different companies doing completely different things. In between, you fit in calls and emails with even more companies doing more things.
However, I think the next mistake is the main source of not moving fast enough.
Investing with the mind and not the heart: As a long time CFO, I suppose I can be forgiven for being analytical. While that side of me will never go away, great investment decisions are not based on logic alone.
I posted a long time ago about something I had experienced raising money: that the investors who ended up investing in my companies fell in love with the deal quickly. What I now realize is how completely subjective venture investing is. It’s not (just) about whether your opportunity makes sense. It’s about whether I am completely in love with the team and opportunity.
And when I say “I”, I mean that the individual partner loves it. This is why it’s so important to approach the right partner within a fund. One who is likely to get and love what you’re doing.
While I am excited by all of my investments there are some that I am completely in love with. Frank and Oak has taken off now, but I was probably a very material component of their early sales. I am always thinking of this business and we speak every week.
Prioritizing opportunity over people: This is related to the last point. In my overly analytical way, I have sometimes invested based on the merits of the opportunity vs the people. You need to evaluate that for sure, but the first priority is the people.
Raising VC is the beginning (hopefully) of a long relationship. Fabric will be 2 years on Dec. 22 and we are just getting started. So, what I now realize is how important it is to invest in people that I want to spend a lot of time with. I think I have accomplished this, but it is now my top filter. (and it should be for you too.)
Investing because someone else was investing: Investing because another investor that you respect has decided to invest is not sufficient reason to write a cheque. It’s important validation but you need to do your own homework. Definitely learned this lesson.
Small deals can take as much time as big ones: As seed investors we want to be helpful to our companies. We’re not just money. I try and get involved in all my companies. But there are some where we are not the lead investor and I have had to force myself to spend less time on those. My scarcest resource is my time. I have to prioritize spending it on those investments that have the most potential for returns for our fund.
Saying ‘no’ too early: Having been on the “other” side for a long time, I have been frustrated many times by VCs stringing me along, never quite saying ‘no’. So, I have made it a point to give direct feedback and make timely decisions. Also, I can’t add value to my portfolio when I’m spending time with companies that I ultimately don’t invest in, so I have been pretty ruthless in killing opportunities.
For the most part this is all good, but as we plan for the future at Real, I think we need to kill things as a team vs. individual partners. To my earlier point, often when I’m passing it’s not because it’s a bad opportunity. It’s because it’s not right for *me*. Sometimes that’s because it’s in a sector I don’t focus on. Sometimes it’s just bad timing.
Saying ‘no’ before meeting a person live: Technology is great, but nothing can replace meeting someone face to face. And now that I am placing so much emphasis on people, I need to make sure that as much as possible I meet these people in person vs. over Skype. For those of you raising money, take it from me, pitching by phone, Skype or webex sucks for all sides. Find a way to meet in person.
Just yesterday I met someone in person that I passed on last year. I probably would have been way more interested if I had met him in person. I just know he’s going to be successful.
Not spending enough time on product: As a fund we invest before a company has market validation. Often the product has not even been launched. Even if it has, it’s early and pre product/ market fit.
For some reason I have previously discounted my ability to give valuable product feedback. I’ve gotten over that now. But to my earlier points, it sure helps in giving feedback if you invest in things and people that you love.
That’s it. I’m sure I’ve made lots of other mistakes, but these are the ones that stick out.