I’ve been chatting with founders and investors about a problem I’m working on. I’ve noticed that as I’ve described the high-level problem, some people tend to relate it to something they’ve seen before and suggest existing solutions to fix it. They don’t understand that the world has changed materially in the last few years and this problem is something different than what we’ve encountered before. They also don’t understand the components of the problem.

I’ve been intentional about taking the time to break the problem down to its core and acknowledge that though I have experience, I don’t know what I still don’t know given the changes in the world. I’ve tried to fill these gaps to better understand the problem so I can craft a new solution that best fits it, rather than pick an existing solution and apply it. It hasn’t always been easy, but I think this is the best approach.

My conversations and experience with this problem have reinforced that first-principles thinking is easier said than done, and it’s the exception, not the norm. If I want to devise a solution that creates maximum value and is an outsize success, I can’t come up with the answer before I know what the question is.

I read about a new ranking system for VC firms created by two college students. Founder’s Choice VC Leaderboard crowdsources rankings of VC firms. The platform allows founders to rank the VC firms that invested in their start-up. It verifies the founders’ identities via LinkedIn and fact-checks the investments in the company via CrunchBase. The process isn’t perfect, but it does provide insight from a founder’s perspective.

The top-ranked firm is Union Square Ventures in New York. I’ve read the founding partner’s blog for years, and I’m not surprised his firm is ranked highest. The top ten included Atlanta-based TTV Capital, which was a great win for the city. Most surprisingly, the most notable firms weren’t in the top ten. Sequoia is often regarded as one of the best firms with the most consistent track record, but it ranked number eleven. Again, this ranking approach isn’t without flaws, but it’s interesting, nonetheless.

Venture capital firms serve two main stakeholders: the limited partners who trust them with capital to invest and the founders to whom they deploy the capital. I’m glad there’s another platform on which founders can share their perspectives about the VC firms they’ve worked with.

A long-time friend asked why I’m so intrigued by early-stage founders and investing. He’s surprised that I don’t like later-stage investing more because there are more measurable data points. I enjoy helping founders at any stage, but I do like the early stage the most. I define “early stage” as pre–product/market fit, so it includes the pre-seed or even seed stage. Here are a few reasons I like this stage:

• Empathy – I started my own company, so I empathize with the zero-to-one segment of the journey. I don’t think you can fully understand it unless you’ve lived it.
• Turnover – The more I’ve zoomed out, the more I realize that early-stage investing is often transient. Founders moving to the next stage is expected and a great thing. I don’t think people realize that many VC investors move to later-stage investing if they’re successful and raise a larger fund. As the VC investors transition, so do the limited partners that invested in their funds. Given all of this, turnover at the earliest stage of investing is high for all stakeholders. I enjoy helping others navigate this transient environment.
• Impact – Helping founders at this stage can have a massive impact. The right piece of advice or the right introduction can change someone’s trajectory.
• Challenge – It’s a difficult stage to invest in. Many people shy away from pre-seed investing because of its challenges and the high failure rate. I view these as problems that can be solved for.

I don’t think the current VC construct for early-stage investing efficiently deploys capital outside traditional VC networks. It can be improved. I want to be part of that solution.

I was going back and forth with a buddy this week about Kobe Bryant’s mentality and why it led to outsize success in a league where he competed with the best of the best. I came across a short clip of him describing the “mamba mentality” and why it works. Here are my takeaways from the clip:

• Kobe’s mamba mentality was about being the best version of himself through continual improvement.
• Kobe understood the power of focusing on the right habits to produce his desired outcome. He developed a habit of training every day, which increased his chances of being the best. (Atomic Habits is great for understanding the power of habits.)
• Kobe understood the effect of compounding effort. He trained more often—four times a day—by starting early in the morning. With this much training, his skills improved rapidly. So much so that after five years, he was so far ahead of his peers that there was nothing they could do to catch him. In a league of the most gifted individuals, he left everyone in the dust.

Kobe’s clip reminded me of a post I shared a few months back. Self-improvement is the key to sustained outsize success. The biggest limit on your success is your ability to improve yourself.

Kobe was smart enough to develop his mamba mentality early in his career, and he became a legend. I’m not as smart as he is, so it took me longer to fully understand this mindset. Because I now understand how important it is, I have daily habits focused on improving myself by acquiring knowledge. I’ve been sharing daily posts for over two years, and that’s a big part of my efforts. I also spend around two hours a day learning. I can’t predict or control the outcome of these efforts, but if I stick with these habits, I’m confident I’ll have outsize success over the next few decades. Maybe I’ll be as fortunate as Kobe and leave my peers in the dust too.

I’m no Kobe Bryant, but I subscribe to his mamba mentality (in my own nerdy way!).

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.

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.

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.

A friend read my posts about larger VC funds creating hurdles (here and here) and asked a great question. Why don’t emerging fund managers keep their funds small? I didn’t address this in my posts, so I’ll touch on it today.

Fund managers are usually compensated in two ways:

• Management fees – The percentage of the capital raised that's used to run the fund. For example, if you raise a $10 million fund with a 2% management fee, you have $200,000 annually for salaries, rent, etc. Specifics around management fees (i.e., duration) can vary by fund. But this is how fund managers keep the lights on and give themselves runway (i.e., salary) to find and support companies.
• Carried interest (carry) – The share of profits paid to the fund manager as incentive compensation. For example, if a fund realizes a $10 million profit (i.e., money above the original capital investors’ commitment) and has 20% carry, the fund manager would receive $2 million in carry. Carry is unpredictable. It’s usually paid as the fund receives capital from company liquidations over the life of the fund (usually 10 years).

If managers successfully raise a fund, management fees are predictable, while carry isn’t guaranteed and payment of it is unpredictable. I’d imagine most managers opt to increase their fund sizes to increase the predictable cash flow from management fees, even though it could lower fund performance.

I wonder if emerging managers would keep their funds small if cash flow wasn’t directly tied to the size of the fund?