When I raised my first Venture Capital fund a year ago, there was no way I could have told you what I would learn during the first 12 months. This is an apprenticeship business, to some extent. You learn by doing, and from doing alongside experts. This helps to refine your judgment and taste when it comes to picking winners. You can gain the apprenticeship experience by working for an experienced VC, or by investing along-side them in my opinion. I didn’t have the chance to go work for a VC, so I raised my own fund and am learning from the best by investing with them.
I’ve learned so much during the first 12 months of deploying capital at Deep Space Ventures. Mostly I learned from mistakes, and from some great mentors that took time to show me the way. Some mentors were individuals I randomly bumped into at a bar and spoke with for 15 minutes (Chris Sacca at Collision in NOLA), and some were investors who have taken an interest in helping me along. Below is a summary of just a few of the lessons learned during my first year.
7 Key Lessons Learned in My First-Year Investing in Startups:
1) You can learn a lot about how to be a good investor/partner/board member from founders.
Founders have been the best resource for me in the last year. There is a therapeutic conversation that happens when founders and investors get together to share what they expect from each other in a relationship. Founders can teach you what they are looking for in a partner, and when you get into a competitive investing situation, that becomes very important.
2) Be obsessed with learning from everyone, about everything.
If you stop learning, even for a second, you are going to get hurt by your blind spots. What are your blind spots? You can’t know yet. I constant identify new ones, and the rate at which I identify things I don’t know, far exceeds the rate at which I learn (maybe that’s a personal problem?). But I’m ok with the delta between those two frontiers (thinking of a line graph), because I can ask experts for help. I’m absolutely terrified of what I call “unidentified unknowns” and you should be too.
3) It’s ok to say “no”, and do it quickly.
Nothing wastes more time for founders (or investors) than lingering around and not saying “no” efficiently and effectively. If you string founders along, then bad things happen. Think about it from their perspective, if 30–40 investors string them along just a little bit, it can waste weeks and months of time for a founder. That’s just not fair.
4) Don’t hesitate to admit inexperience or lack of knowledge.
The startup ecosystem, and certainly at the seed stage, is a very open-sourced environment. Many people around you want to help you succeed including founders, other investors, accelerators, mentors, lawyers, etc. Their incentive to help comes from their need to see the ecosystem grow, so leverage that. Lean on them for advice and ask a lot of questions.
5) Trust your gut, before it gets colored by those around you.
Hopefully you have good taste, and trusting your gut, is good advice. If you have bad taste, then I guess you will figure it out, eventually, and hopefully not at a high price, but likely so. I can’t say I have good or bad taste yet, because I haven’t had any proof (no exits — one year in). I’ll report back when I get a sense of how good or bad I am at picking winners.
6) Build relationships with other investors, even if you must buy your way in at first (in deals).
I learned so much from other great investors and I would recommend to anyone, to get access to a few deals that great investors are in, so you can have a chance to learn from them first hand. Spending a fractional percentage of investment capital to get access to more deals, with better investment groups, could pay off in the long run.
7) You must become efficient with everything you do.
Early on, I tried to take face to face intro meetings with almost everyone. Not efficient, obviously. I want to learn as much as I can about a business before meeting them, with the intent of not wasting their time, or mine. Inefficiency leads to missing winners. Missing one winner, can be the difference between raising your next fund or being a one-time fund manager!