I’ve been looking for data to quantify how the network problem in VC affects fund returns and efficiency of capital allocation to early-stage founders. I suspect that VCs that subscribe to the usual approach have funds that perform worse than those with diverse networks closer to ground level (i.e., network entrepreneurs are already in). I’ve read several academic papers that dive into VC networks, but they’ve all looked at this from the perspective of existing VC networks. Said differently, the papers look at how well VCs network among themselves and how that affects fund performance.

My observation seems obvious, but it’s been challenging to find research or data on this point—either way. I’m starting to wonder why people haven’t spent more time looking at things from this perspective. Maybe it isn’t as obvious as it feels to me. I connected with one other person researching VC from this perspective, and he shared that he too feels like no one else is looking at things from this angle. There seems to be a miniscule contingent that is. Others accept the status quo in VC. This makes me wonder if this a unique insight that could be the foundation of a game-changing solution.

I’m not sure right now, but I’ll be keeping this top of mind as I progress. I’ll be excited if this is a unique insight!

Today marks the end of my one-hundred-twenty-eighth week of working from home (mostly). Here are my takeaways from week one hundred twenty-eight:

• Persistence – I’ve been trying to connect with certain people for months. I tried various ways to reach them that ended up being dead ends. But I didn’t give up. Finally, I networked my way into meetings with them. This week reminded me that persistence pays off. I just need to be patient while I’m being persistent.
• Community – Been thinking a lot about the importance of community for early founders. Community builders in start-up ecosystems don’t have it easy. Finding runway to build and sustain these communities is a hurdle.
• Understanding people – Understanding what drives someone’s actions is important. Why they do something can matter more than what they do. It’s not always easy to get to a person’s true motivation, but when you do, it can be game-changing information that helps you understand the best way to interact with them.

Week one hundred twenty-eight was short but productive. Looking forward to repeating the productivity next week.

The most important part of a city’s start-up ecosystem is the people in the ecosystem: founders, investors, university personnel, service providers, community builders, etc. How they think and the lens they view things through. How freely they share information and relationships with early founders. This all creates the culture of the ecosystem.

How people think and act is heavily influenced by the start-up history of a city. Changing that culture can be a slow process, but it can happen faster with big events (positive or negative). If a company has a big exit, people start to think a little bigger about what’s possible. The reverse can be true if a company creates a massive crater.

Remote work will stick around (in some form or fashion) for the foreseeable future. I suspect that a material number of people left cities where dreaming and thinking big was part of the start-up culture. They’ve seen the impossible happen and witnessed outsize outcomes from those efforts. As they settle into new cities and get acclimated to the start-up ecosystem there, I suspect they’ll add diversity of thought. I’m curious how this will affect the start-up cultures (for better or worse) of cities like Atlanta. Will the mass migration be a big event that has a lasting impact on start-up cultures?

I chatted with a venture investor today. He built a new approach to deploying early-stage capital to early founders. It’s doing well and could prove impactful. I asked what he’d learned from watching this new approach to investing take off. He said he learned that there is no right way in venture capital—there’s only the way that’s available to you.

He shared a ton of other great things that I’ll digest shortly, but this one immediately stuck out to me because I don’t think it’s historically been true of the venture capital industry. The network problem in VC applied to outsiders looking to enter the industry as investors and, of course, founders seeking capital. No way was available to people outside traditional venture capital networks.

The pandemic and other factors have changed venture capital. I think we’ll begin to see new ways for high-potential venture investors to raise and deploy capital and for high-potential founders to connect with investors and access capital. When that happens, the entrepreneurial impact will be massive.

Today I had a productive whiteboarding session about a problem I’ve been thinking about. I’ve been chatting with a buddy about the problem regularly, but those phone calls and Zooms have their limits. Recognizing this, we decided it was time to whiteboard some things out. The exercise helped us crystalize our thoughts and pinpoint critical areas to focus on.

The whiteboard itself isn’t revolutionary. It’s just a place to capture and sort your thoughts. I enjoy whiteboarding sessions because participants are in problem-solving mode. This mental state is important. The collaboration and focus on ideation about a single problem are powerful.

Looking forward to next steps stemming from today’s session.

Happy Labor Day!

I hope everyone had a safe and healthy holiday!

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Entrepreneurs and others who have outsize success are often described as crazy. They do things that others wouldn’t (or couldn’t) do. They take nontraditional paths and embrace the risk of doing so. Admittedly, my family and close friends have called me crazy for some decisions I’ve made through the years. I agree that founders and others who push the envelope are different, but I’m not sure that crazy is the best way to describe them.

Many people see the future as a continuation of the past (possibly with slight modifications). With this accepted, safe perspective, they take similar paths and do similar things in their lives. Unsurprisingly, their outcomes aren’t out of the ordinary. Entrepreneurs see the world differently. They view the future as something that can be molded into what they want. They understand that creating that future requires blazing a new trail or taking one less traveled. Their actions go against the grain of what everyone else is doing and can seem odd; hence the “crazy” label.

Founders and others who have outsize success are as sane as anyone (usually!). The difference is their perspective. They see the world differently than everyone else and their conviction is strong—so strong that they’re comfortable backing it up with actions others aren’t likely to take or understand.

After they’ve had success and made an impact, people stop thinking of them as crazy and start thinking of them as geniuses. Nobody ever changed the world by doing what everybody else does.

I listened to someone share his observations about entrepreneurs. The gist of it was that intense entrepreneurs are the most successful entrepreneurs. By “intense” he meant outspoken and demanding—characteristics that push them and others to get things done.

I disagree. People of all personality types can be successful. People who are laid back or don’t say much can be just as ambitious and convicted as outspoken, demanding people. They just communicate it differently.

Building something great isn’t about pounding your fist on the table and yelling. It’s about giving your team clarity on what the mission is, holding everyone accountable, motivating them along the way, and celebrating wins together. If you do these things and have the right people, and they’ve bought into what you’re trying to accomplish, you can accomplish what seems impossible. Notice that these management skills don’t require intensity. You can do them all and still be as laid back as you want.

If you’re a founder or aspiring founder, remember that intensity isn’t an indication of your ambition, conviction, or likelihood of success. Be yourself. Lead in a way that fits who you are naturally.

Today marks the end of my one-hundred-twenty-seventh week of working from home (mostly). Here are my takeaways from week one hundred twenty-seven:

• Low meeting bar – Some conversations led to some great, unexpected outcomes. My expectations of these meetings were low, and I wasn’t sure what would happen. This experience reminded me to leave room for serendipity in my meeting schedule.
• Conviction – Having strong feelings about something is important when you’re trying to do the impossible. They help you weather the inevitable emotional roller coaster. Absent that conviction, you’ll likely give up too soon. Being able to communicate your conviction in a way that’s authentic is also important.
• Holiday – I always enjoy holidays because of the opportunity to spend time with family and friends. Looking forward to the long weekend.

Week one hundred twenty-seven was steady. Looking forward to the holiday and next week.

Yesterday I shared a post on how cash flow likely influences fund managers’ decisions to increase their fund size. I ended with a question: Would emerging managers keep their funds small if cash flow wasn’t directly tied to fund size?

Today I had a chat with someone who has an operator and early-stage investing background. He shared his experience as an investor and the model his group used to avoid increasing fund size. They charged a standard 20% carry. And instead of a management fee that was a percentage of capital raised, they charged a flat fee to each limited partner. These fees helped cover operating expenses and allowed them to keep the fund size optimal for the investing stage they were targeting. Their model had other interesting nuances, but this was their basic approach to addressing the cash flow issue.

This approach has pros and cons . . . but they’ve been around for almost 20 years. Definitely something to learn more about and consider.