Chip Hazard; General Partner, Flybridge
One of the challenges in venture capital is that the feedback cycle is incredibly long. If outliers are all that matter and it takes 8 years or more for a startup to go public, you won’t know if your decisions made to invest today were right, or to pass on an opportunity wrong, for a long time. You will, however, know faster if a decision to invest was bad, as this becomes apparent more quickly as companies misfire and struggle to gain traction.
Given this long feedback cycle, how can you know along the way if you’re any good at backing companies, and what can you do to hone and refine your approach? While our investors care most about realized returns, there are a few other indicators throughout the SSWISH cycle that can provide insights into this question.
See & Why Now
- Are the companies I see getting funded by quality venture investors?
- Do I regularly see companies announcing investments in my sectors that I did not see?
- Are the underlying drivers of my wave thesis playing out as I expect? Are more investors and industry pundits starting to recognize these trends? Are there unexpected developments that could call this thesis into question?
- Are high-quality sources reaching out to me with good introductions in my areas of interest?
- Are the companies I’ve invested in hitting their milestones in terms of growth and adoption? Does the underlying market appear to be coming together as expected, or are things slower than hoped?
- Is this portfolio company progress being rewarded with follow-on financings at increasingly higher prices-per-share?
- Do I continue to be impressed with the founding teams I’ve backed? Are they showing evidence of strong execution, consistent hiring and retention, and an ability to iterate and adapt quickly?
- Are the companies on my “potential misses” list doing well and seeing the same growth and financing success as my portfolio? If so, what does this say about my blind spots?
- When I decide to invest, am I winning my way into opportunities the market views as attractive? Am I able to invest the amount I want to in each company?
- Can I point to tangible ways in which I have helped my companies? Do I make high-impact introductions to my companies, or am I potentially wasting their time?
- Do the founders view me as a trusted resource?
- Am I getting new founder introductions from my existing portfolio companies?
- Am I finding the right balance between pushing hard and reining in? (I recently did a formal founder 360 review on how I’m doing as a board member, and I strongly recommend asking for feedback from your companies in a structured manner on a semi-regular basis.)
Manage & Harvest
- Do I think some of my companies are on a path to becoming outliers? Am I working on getting more resources behind my most promising companies?
- Do I avoid putting good money after bad? Is my loss rate higher than top-tier industry norms?
- Have I helped middling companies navigate to positive exits?
A regular self-assessment on these questions can be super helpful. If you’re part of a team or network, pushing your partners or mentors to provide candid feedback will keep you honest about your strengths and areas for improvement.