Venture Investor’s Playbook: Part 1

Flybridge
3 min readSep 17, 2019

4 Success Factors for Early-Stage Venture Investors

Chip Hazard; General Partner, Flybridge

This past August marked my 25th year in venture capital. The industry has changed a lot over those years: the US market has grown 20x, VCs invest in far broader and diverse sectors, and the industry is notably more global today than it was in 1994. What hasn’t changed significantly is what it takes to be a great venture investor. Starting today and in a series of subsequent articles, I’ll share my thoughts on the importance of big winners, why it’s crucial to get in front of massive trends, how to successfully execute business on a daily basis, and how to be an adept portfolio manager.

Why am I sharing these insights, and why now? At a recent offsite for the XFactor Ventures Fund 2 launch, I developed a set of overview materials for the team on the success factors of a great early-stage venture capitalist. In so doing, I realized that VCs write much for founders seeking to raise early-stage venture capital¹ and build start-up companies, but relatively little about how to be an excellent early-stage investor. The continued success of venture capital relies just as much on having great investors as it does on having great start-ups. That’s why I’m sharing my thoughts and experiences.

I don’t claim to be the best venture investor out there, but over the last 25 years I have:

  • Spent 8 years at Greylock and the last 17 years as a co-founding partner at Flybridge.
  • Been a partner in 9 venture funds.
  • Raised over $700M in capital for 5 Flybridge and 2 XFactor funds.
  • Backed some major winners (such as MongoDB).
  • Returned over 5x invested capital across all my realized investments (wins, losses, and everything in between, which, as we will see later, is top 10% performance).

As a result, I’ve learned some things along the way from both the wins and the mistakes and these learnings may be helpful. In this series, I’ll focus on early-stage (pre-seed, seed, Series A) venture investing, although many of the lessons are broadly applicable.

From what I’ve experienced in my time as a VC, there are 4 critical success factors to being a great venture investor:

  1. Power Laws. Great venture capitalists and venture capital funds are defined by massive winners. The best investors fully internalize this power law of returns dynamic and seek to back companies that can become outliers — massive wins are all that matters in driving returns. This is covered in more detail in Part 2.
  2. Market Trends. A key to investing in the best companies is to identify macro market trends early and to ride the waves of growth they create. Early-stage companies need winds at their back, so investing early behind rapidly emerging trends creates an environment for young businesses to flourish. This is covered in more detail in Part 3.
  3. SSWISH. To be a great investor, you need to master the cycle of Seeing-Selecting-Winning-Investing-Supporting-Harvesting (SSWISH). This means you need to see a lot of opportunities, select the best ones, win your way into hot deals, support your companies’ growth, and navigate a path to generating liquidity from your investments. These stages all feed off each other. The See-Select portion of this cycle is covered in Part 4 and the Win-Invest-Support-Harvest portion in Part 5.
  4. Concentration. The best-expected value returns are most likely the companies already in your portfolio that are “killing it”, so lean into your winners with more capital.² This should be married with a starting portfolio of more, rather than fewer companies, to account for the inevitable randomness in returns and performance. This is covered in Part 6.

While simple to describe, doing these things well and consistently is far more challenging. Next, I dive into each of these success factors starting with the Power-Law of Venture Returns here in Part 2 of the Playbook.

[1] Three great books on this topic are: Secrets of Sand Hill Road: Venture Capital―and How to Get It by Scott Kupor, Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, by Brad Feld and Jason Mendelson, and Mastering the VC Game by Jeff Bussgang.

[2] Yes, I know, if you’re already a VC, all your companies are killing it. :).

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