Early Stage VC Thoughts for 2024
It’s important for both founders and investors to remember a few things about pre-seed and seed stage investing.
1) It is inherently subjective. Meaning that what an investor chooses to invest in has more to do with what they like and have an affinity towards than anything else. Certain investors are adept at identifying certain patterns in the areas of market, team, product and are weak in others. The skilled self-aware investor knows their strengths and will therefore be attracted towards a company that another skilled self-aware investor will be totally disinterested in. Founders should not try to please everyone and instead try to learn who will appreciate them. Affinity leading to excitement is key. This can happen in many different ways.
2) It is an “opt-in” game rather than an “opt-out” game. Meaning that the default answer is going to be “out,” and investors need to actively make a decision to opt-in to any given investment. Not hating something is not a reason to opt-in. Not loving something is a reason to remain “out.”
3) It is not a “market.” Meaning that there is not some global ranking system wherein the top X% will receive $Y. While this may be what analyses show after the fact, it is impossible to know who the X% are on the front end — therefore assuming market behavior in the moment is not rational. That being said, there are market dynamics at play when it comes to prices and round sizes. In other words, if one investor (or even a group of them) does not like a company, no matter how successful those investors are, it does not mean that it will not be a successful company. The inverse is also true.
4) It is still a business of exceptions and outliers. Meaning that expected values are almost always wrong. You cannot assume that the characteristics that drove success for Company A 5 years ago will drive success for Company B today, in fact you can almost certainly assume that they will be different (and you may not actually understand what drove success for Company A despite any conventional wisdom).
5) The pitch is important, but it’s rarely the reason that good investors pass on any given company. Getting feedback on the pitch won’t change a good investor’s view of the company.
6) Intermediate success is not the goal. Writeups are hardly validation. Meaning that all the heat we saw in 2021 will prove to have been more destructive than accretive overall. If a follow-on round gets done at the same price as the previous round vs 3x that price, it has very little bearing on the ultimate outcome of that company.
7) A successful track record of investing at Series A and B is unlikely to translate to a successful track record investing at pre-seed and seed.
8) There are a lot of ways to be successful. There are even more ways to fail. Go in eyes wide open. Stay agile as things develop.
9) Being helpful falls into 2 categories:
A) Doing what a founder asks.
B) Giving a founder what they didn’t know they needed to ask for.
B > A
Looking forward to a great 2024!
