It’s been interesting to watch the last few years of venture capital. The number of firms raising larger funds appears to be increasing. This sounds good until you consider the math of venture capital funds. Most early-stage funds consider an investment a winner if it returns the entire fund or more. If you raise a $500 million fund, you’re looking for an investment in a single company to return $500 million or more. The number of companies capable of such a return is small, so when you find one, you must capitalize on it. If you don’t, a fund is less likely to generate a meaningful return for its investors when the companies that will fail are factored in.

Instagram is a well-known acquisition. It was founded in 2010 and acquired in 2012 by Facebook (now known as Meta) for $1 billion. Andreessen Horowitz invested $250,000 in Instagram’s early seed round and realized $78 million at the time Instagram was sold. That’s a 312x return. The challenge is that Andreessen made the investment from a $1.5 billion fund. Instagram was the investment of a lifetime, but it didn’t return the fund. It returned less than 6% of the fund. That means Andreessen would need to make 19 investments like this one to return its fund. That’s not likely. Do note that Andreessen made decisions specific to this situation that reduced the firm’s return, but this nevertheless illustrates the challenge of large funds investing at the ground level of a company.

The larger the fund, the larger the check the fund needs to write (unless it increases the number of checks) for a single investment to return the fund. When VC firms raise larger funds, many choose to invest at a slightly later stage (think seed instead of pre-seed or series A instead of seed) because the larger check size makes sense given the number of checks they want to write out of that fund. I think this leaves a void to be filled. The question is, what’s the optimal way to fill that void AND still generate a meaningful return?

The rise of no-code tools has made it easier than ever to get early versions of products into the hands of users for validation. What used to take months and a technical leader can now be done in a weekend by almost anyone. No-code tools are a founder’s friend for this part of the journey—but they can’t be relied on much beyond that.

I chatted with a founder who has a few enterprise customers paying to use a solution he built via no-code tools. He’s now looking to raise capital off this validation so he can scale. The challenge is that he doesn’t have a full-time technical leader on his team. I explained to him that his situation carries high execution risk that could hinder his fundraising. He hasn’t shown he can build a technical product. Nor does he have a technical leader with a track record of building products. Investors will give him credit for solving a valid problem because customers are paying, but there will be questions about technical execution. Can he build a technical solution and scale it?

No-code tools are great for validating the problem, but they aren’t the goal. If you’re a founder using or considering using a no-code tool, have a plan to start building your own proprietary product so you can remove concerns around execution and build something scalable.

I chatted with a founder who’s building an impressive software company. He’s bootstrapped his growing—and profitable—company to $2 million in annual recurring revenue. And he’s done it without proximity to success, since he lives in a tier 3 city. He’s been figuring it out as he goes. I could tell he didn’t understand the significance of what he’s built to date. Sure, there are things that need to be cleaned up, but the results are impressive given his resources and environment. He’s thinking about raising capital now and isn’t sure how to go about it or whom to talk with.

I think of him as an outlier founder. He’s outside the purview of traditional start-up and venture capital networks and ecosystems. Yet he’s demonstrated that he has many of the traits that make a great founder, including resilience in a suboptimal environment. If he were surrounded with the right resources and advice, this founder has the potential to build a huge business that customers love.

Outlier founders (and markets) really interest me. They’re solving unique problems that are overlooked by most people. I believe there’s a ton of opportunity to have a huge impact on society by getting resources to outlier founders and markets.

I talked to a friend today who’s in a fortunate position. He’s an executive with start-up experience, and several companies are recruiting him. All the opportunities look good on the surface, and all the founders are trying to move the process along quickly. He’s trying to figure out how to make the best decision for his family. He asked for my thoughts.

I think I know which company he’ll end up with. From the initial pitch, everything sounds promising. The market is big, the product is great, customers love the solution, and the team is strong. My feedback was simple: Don’t fall in love with any opportunity until the deal is signed. Continue to move all the opportunities forward with a focus on diligence to better understand each and gauge for fit. The recruitment process is bidirectional—treat it as such. Understanding the market and the team (especially the culture) and talking to customers are some ways to gain insight. As you dive deeper, you’re bound to uncover things that didn’t make the sales pitch; you’ll have to determine if they’re deal breakers or not.

I’m excited for my friend and can’t wait to see where he lands!

I was chatting with a founder about his fundraise. He’s frustrated because it isn’t going as planned—he wanted to be through with the fundraise by now. He’s deep into conversations with a few investors and asked for some thoughts.

I view fundraising as a momentum-building process. Once you get a little momentum going, you’re rolling. I suggested that instead of asking how to complete the fundraise, he should step back a bit and think about how could get some visible momentum. Is there an angel investor or firm that’s close to a decision that he can persuade to close? If so, that’s momentum he can use to instill a sense of urgency in others.

Momentum is a powerful force and a fundraising founder’s friend.

I listened to a friend criticize a founder’s decision on an important issue. The founder originally told his staff they would do X. A few weeks later, he changed his mind and decided to do Y. I was curious why he changed his mind, so I asked. In short, the data changed. His initial decision was based on a projection that had materially changed since then. If he’d stayed the course, the result could have been serious challenges for his company in the future. The initial decision was well communicated and well received. But when the decision was reversed, there was no official communication; people heard about it through the grapevine.

Hard decisions must be made when you’re leading others. There’s no way around them. Making difficult or unpopular decisions isn’t what gets leaders in trouble; it’s the way they’re communicated—or not—that can land leaders in hot water. Some leaders avoid delivering unpopular news for fear of upsetting their teams. What they don’t realize is that people are often OK with whatever happens if they know why it’s happening. And people don’t like uncertainty. They want to hear from their leader when there’s important news that could affect them.

If you’re a founder, there’s nothing wrong with changing your mind or making unpopular decisions. It comes with the territory. But be aware that how you communicate your decisions can have a lasting impact on your team’s confidence in you as a leader.

I listened to an interview given by the CEO and co-founder of Coinbase. This cryptocurrency marketplace is publicly traded and, as of this post, has a market cap (i.e., valuation) of almost $14 billion. Brian Armstrong co-founded the company in 2012 and has been the CEO from zero to $14 billion public company, so I was curious to hear what he had to say.

It’s a lengthy interview with lots of great nuggets, but one especially stuck with me. Asked for advice on surviving the early days (when you have a team of five or fewer), Armstrong said, “If you’re pre-product–market fit, the best advice from that period is action produces information. Just keep doing stuff.”

Armstrong elaborated: doing something, even if it’s wrong, will produce information. Whatever you do will be proved to be either a good move or a failure. If it’s a failure, you’ll learn from it and get a better idea of what you need to do to achieve success—the right next step or solution to the problem. If you do nothing, though, you get no information and make no progress.

Some people are hesitant to act because the path to success is unknown. Armstrong addresses this with an analogy. Trying to do something great is like being at the base of a mountain shrouded in fog. You look up to the top and ask yourself how you can get there. You can see only three or four steps ahead because of the fog—the path to the top is hidden. When you take a few steps into the fog, you can see another three or four steps ahead but no more, because the fog is still there. The only way to uncover the path to the top is by taking steps into the unknown, which reveals the path a few steps at a time.

I enjoyed Brian’s thoughts, and I agree. If you want to hear this part of the interview, take a listen here.

I read a quote today that I like:

“There are those that look at things the way they are, and ask why? I dream of things that never were, and ask why not?”

~ George Bernard Shaw

Perspective has an outsize impact on our decision-making and actions. Accomplishing the impossible is the result of asking “why not?”

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A buddy shared an interesting thought with me today. He believes in building an entrepreneurial platform. As a founder builds his business, he institutionalizes the knowledge and relationships from his journey in the platform. As his success grows, the platform grows too. The process of building this platform is intentional. It may take years, even up to a decade, before it has significant substance. It doesn’t take away from his entrepreneurial success or slow him down materially if he adds to it as he goes along (versus at the end of his journey).

This approach gives the next crop of founders with access to the platform an advantage. They benefit from the know-how and relationships the previous founder developed. The new founders can use the platform to do more earlier in their journey because they don’t have to endure as much trial and error. They’re positioned to go further than the entrepreneur who went before them. As new founders reach new heights, they add know-how and relationships from their journey to the platform to help the next generation of entrepreneurs.

I like my buddy’s ideas and want to think more about this.

When you’re trying to accomplish something meaningful, it usually doesn’t go up and to the right. There are periods when things don’t pan out. You feel like you’re not making progress. This is often the part of the journey that’s most challenging. People get frustrated that things aren’t going according to plan and get down on themselves or give up.

I was chatting with a buddy today about this part of the journey, and we agreed it’s where people separate themselves. The average person feels like things are out of their control and gives up. Successful people take control and refuse to give up. They start hustling. They focus on increasing their activity level in hopes of something happening that gets them out of the lull. More times than not, the hustle leads to something unexpected happening and getting their journey back on track.

If you’re working on something you believe in and you hit a lull, don’t give or get down on yourself. Start thinking about how to hustle your way out of the lull.