Kiva Dickinson’s Post

For younger investors: here's some hard shit to consider re: venture investing and track records. Untangling luck from skill is complex and takes time. Some configurations you might find yourself in: Case A/ You back the right company, make all the right decisions, fail horribly. Your partnership thinks you suck, you get lambasted in the press, maybe you even get fired. You go back and coldly analyse your decision making; if it was solid - you should probably write that check again! Case B/ You back a rando company with scant process, hit it out of the ballpark, make the Midas List, everyone calls you a Legend. You got lucky but now your ego is all tangled up in your own genius. Imposter syndrome kicks in, because somewhere in your system you know you haven't cracked any sort of code. Case C/ let's go next level confusing: you're a young partner and back 5 companies in Fund V. Yay. But three years on, none of them look like winners yet, they're just trudging along. Everyone thinks you're meh as your partnership raises Fund VI. Turns out you put absolutely the right "type of risk" in the portfolio and your sixth investment is a triple fund returner. Who knew? Go figure. In venture - outcomes and the quality of decisions are not nearly as correlated as one might think. Conversely, any unskilled player with a checkbook can hit the jackpot once in a while. It's a shitshow. So you need to - learn to detach your self-worth from the quality of the outcomes and focus on the quality of your decision-making instead. - define, hone and refine these decision-making processes patiently over time - have rigorous and self-aware feedback sessions to assess the above Skill is not developed by time and experience alone, but through the implementation of a rigorous method of building predictions, seeking hidden knowledge to build these predictions, and systems-based decision making that addresses your own biases. This is why this game is hard. But hang in there, you might just be on the right track :-)

For younger investors: here's some hard shit to consider re: venture investing and track records. Untangling luck from skill is complex and takes time. Some configurations you might find yourself in: Case A/ You back the right company, make all the right decisions, fail horribly. Your partnership thinks you suck, you get lambasted in the press, maybe you even get fired. You go back and coldly analyse your decision making; if it was solid - you should probably write that check again! Case B/ You back a rando company with scant process, hit it out of the ballpark, make the Midas List, everyone calls you a Legend. You got lucky but now your ego is all tangled up in your own genius. Imposter syndrome kicks in, because somewhere in your system you know you haven't cracked any sort of code. Case C/ let's go next level confusing: you're a young partner and back 5 companies in Fund V. Yay. But three years on, none of them look like winners yet, they're just trudging along. Everyone thinks you're meh as your partnership raises Fund VI. Turns out you put absolutely the right "type of risk" in the portfolio and your sixth investment is a triple fund returner. Who knew? Go figure. In venture - outcomes and the quality of decisions are not nearly as correlated as one might think. Conversely, any unskilled player with a checkbook can hit the jackpot once in a while. It's a shitshow. So you need to - learn to detach your self-worth from the quality of the outcomes and focus on the quality of your decision-making instead. - define, hone and refine these decision-making processes patiently over time - have rigorous and self-aware feedback sessions to assess the above Skill is not developed by time and experience alone, but through the implementation of a rigorous method of building predictions, seeking hidden knowledge to build these predictions, and systems-based decision making that addresses your own biases. This is why this game is hard. But hang in there, you might just be on the right track :-)

For younger investors: here's some hard shit to consider re: venture investing and track records. Untangling luck from skill is complex and takes time. Some configurations you might find yourself in: Case A/ You back the right company, make all the right decisions, fail horribly. Your partnership thinks you suck, you get lambasted in the press, maybe you even get fired. You go back and coldly analyse your decision making; if it was solid - you should probably write that check again! Case B/ You back a rando company with scant process, hit it out of the ballpark, make the Midas List, everyone calls you a Legend. You got lucky but now your ego is all tangled up in your own genius. Imposter syndrome kicks in, because somewhere in your system you know you haven't cracked any sort of code. Case C/ let's go next level confusing: you're a young partner and back 5 companies in Fund V. Yay. But three years on, none of them look like winners yet, they're just trudging along. Everyone thinks you're meh as your partnership raises Fund VI. Turns out you put absolutely the right "type of risk" in the portfolio and your sixth investment is a triple fund returner. Who knew? Go figure. In venture - outcomes and the quality of decisions are not nearly as correlated as one might think. Conversely, any unskilled player with a checkbook can hit the jackpot once in a while. It's a shitshow. So you need to - learn to detach your self-worth from the quality of the outcomes and focus on the quality of your decision-making instead. - define, hone and refine these decision-making processes patiently over time - have rigorous and self-aware feedback sessions to assess the above Skill is not developed by time and experience alone, but through the implementation of a rigorous method of building predictions, seeking hidden knowledge to build these predictions, and systems-based decision making that addresses your own biases. This is why this game is hard. But hang in there, you might just be on the right track :-)

For younger investors: here's some hard shit to consider re: venture investing and track records. Untangling luck from skill is complex and takes time. Some configurations you might find yourself in: Case A/ You back the right company, make all the right decisions, fail horribly. Your partnership thinks you suck, you get lambasted in the press, maybe you even get fired. You go back and coldly analyse your decision making; if it was solid - you should probably write that check again! Case B/ You back a rando company with scant process, hit it out of the ballpark, make the Midas List, everyone calls you a Legend. You got lucky but now your ego is all tangled up in your own genius. Imposter syndrome kicks in, because somewhere in your system you know you haven't cracked any sort of code. Case C/ let's go next level confusing: you're a young partner and back 5 companies in Fund V. Yay. But three years on, none of them look like winners yet, they're just trudging along. Everyone thinks you're meh as your partnership raises Fund VI. Turns out you put absolutely the right "type of risk" in the portfolio and your sixth investment is a triple fund returner. Who knew? Go figure. In venture - outcomes and the quality of decisions are not nearly as correlated as one might think. Conversely, any unskilled player with a checkbook can hit the jackpot once in a while. It's a shitshow. So you need to - learn to detach your self-worth from the quality of the outcomes and focus on the quality of your decision-making instead. - define, hone and refine these decision-making processes patiently over time - have rigorous and self-aware feedback sessions to assess the above Skill is not developed by time and experience alone, but through the implementation of a rigorous method of building predictions, seeking hidden knowledge to build these predictions, and systems-based decision making that addresses your own biases. This is why this game is hard. But hang in there, you might just be on the right track :-)

🔥 One of the most hotly debated topics in VC is: Should you follow on? 🤔 ….Or is it better to make a “net new” investment & maximise the outlier probability. 🤹 There are lots of factors at play when making a follow on decision: ▶ Not wanting to sever relationship w/ founders ▶ Signalling risk for “new” investors ▶ Confirmation bias ▶ Anchoring bias ▶ Information bias 🤝 VCs want supportive to their founders - you make money on your winners but your reputation on your losers. 💼 BUT VCs also have an obligation to their investors to invest capital where it has potential to maximise return. 🎯 Does making a net new investment maximise the probability that you may hit an “outlier”? 🔍 Here’s how 2 of the world’s best - Floodgate & Kleiner Perkins have structured their follow on strategies: 1️⃣ Floodgate (Mike Maples, Jr) 🌱 Having invested in the seed rounds of Twitter, Lyft, Okta & Outreach - Floodgate is one of the world’s top seed funds! 📈 Their first 2 funds returned 7x invested capital to their investors. 📊 Maples analysed their portfolios & realised if they’d had 70% first cheque / 30% follow on (as opposed to 50/50)… …. they’d have achieved a 9x multiple on the fund! 💡 With these findings, they separated their strategies with 70% of capital for first cheques & 30% for follow ons. 👩💼 The follow on investing is managed by a separate partner (Iris Choi) who is *incentivised* targeting a 5x fund multiple. 🔎 She evaluates each deal as a “net new” investment eliminating past biases. 💭 This strategy is articulated to founders (which is important) at the start & in my opinion makes a lot of sense! —— 2️⃣ Kleiner Perkins (KP) 🎙️ On a recent podcast, partner Mamoon Hamid revealed their follow on strategy. 🤯 Surprisingly, in most cases, they do NOT do their full pro-rata (ie. The investment required in a follow on to maintain existing ownership). 💰 This reduces their cost basis on the original investment. 🕵🏻♂️KP’s growth fund evaluates all their investments as a “net new investment” & will selectively choose where to double or triple down. 🔄 Approximately 50% of their growth fund is invested into existing KP companies. ——— 📚 Lessons? 📢 Yale CIO Dave Swensen used to say: “The most important decision you make is your allocation decision.” 💼 Whereas he was referring to different asset classes… ….in VC, this allocation is upfront investment vs. Follow on. 🌟 As Maples says “What people don’t understand is that that single decision you make is very profound. It’s one of the most important decisions you can make as it relates to the returns you’ll get.” 💡It’s helpful for angels & allocators to understand how the world’s best manage portfolios. 👇What are your follow on strategies? Would love to hear in comments. PS- If you enjoyed this & found it valuable, ♻️ consider sharing it with others & 👉🏽follow me Akhil Paul for more #venturecapital #startups #investing