Member-only story
“One Thing You Wish People Better Understood About Venture Capital” — Part I, featuring Andre Charoo, Bill Clerico, Ryan Hoover, Amy Saper, and Dan Teran.
I asked some investor friends to share, as the title suggests, one thing they wished people better understood about venture capital. There were no ground rules other than to specify that ‘people’ could be founders, politicians, LPs, etc and that it would be default attributed but anonymous if they desired. Here are the first batch of responses (with some of my reactions). More to come in batches of five answers each post.
The beautiful truth about the game of VC is that it consistently rewards difference. This difference comes from the outlier returns driven by backing founders who are different. Of course, difference inherently carries risk. Despite this truth however, institutional LPs aren’t incentivized to take that risk. I wish the structure behind institutional LPs were more conducive to backing GPs who are different. Because, in turn, these GPs will back more founders who are different, which will lead to more outlier returns, which ultimately leads to more products and services that change the world. [Andre Charoo, Maple VC]
[hunter: 100% agree. The majority of established venture firms are evolving into large asset managers, and this creates space + opportunity for all sorts of new strategies, the best of which will absolutely outperform, on a multiple basis, the entrenched. It’s part of the reason we started Screendoor, a fund of funds aimed specifically at new VCs. And we’re proud backers of Andre/Maple.]
There are many ways to play the game in VC. Knowing your strengths and which game to play is critical when managing a fund (and more broadly, any professional endeavor).
Some investors get pulled into different games, perhaps unknowingly, through their career as a manager. One of the biggest “traps” is in escalating fund sizes. Deploying a $10M fund is wildly different from operating a $100M fund. It can be alluring to raise more capital in each consecutive fund, but doing so often requires the fund to deploy larger checks, shifting their position as a collaborative investor to competitive player among peers. Now they’re stuck fighting to secure the lead position in a round and…
