Win The ‘Sure Things’ Or Find The Hidden Gems? What’s My Job As A VC?
“So, do you think your job is to win ‘consensus’ deals or find the ‘non-consensus’ opportunities?” This has been my favorite question to ask fellow seed investors over the last year, and the answers are telling. Some have very strong reactions, dismissing any alternate strategy to their own as imperfect. Others go back and forth in their own mind, realizing that their current execution, even if successful, is at odds with the words coming out of their mouths in response. Like most questions of this sort I don’t believe there’s an absolute correct answer but I do believe — now more than ever — one’s success as a seed VC depends on knowing *your* playbook and running it superbly.
SaaS investor Jason Lemkin noted this the other day in the above tweet. There’s a lot of capital chasing ‘consensus’ deals, but this doesn’t necessarily mean you should avoid them as an investor if you have a legitimate shot at picking and winning well among them. There’s a historically true 2x2 that suggested the real money is in non-consensus opportunities, but it turns out that given the growth is size of outcomes, that “right” and “consensus” is still a fund returner, sometimes many times over.
Several of the seed VCs I respect most, and would put my own money into, have told me they shifted to high ownership and consensus during the last few years. It doesn’t mean they just care about pattern matching or social proof. There are still plenty of ‘hot’ deals they pass on and other investments they make which aren’t necessarily as well understood by the industry at the point at which they invest, but the scale of winners (and the ease with which they have ability to raise ongoing capital), along with increased size of their own funds, have made these firms less reliant on the needle in the haystack.
We’ve also seen a number of startup attributes which used to be considered ‘non-consensus’ become less disqualifying. Location for example. Go back 10 years and a startup outside a major tech hub would be a…