Back to Basics: My VC Manifesto

A Guide to Navigating a Manic Market as a Venture Capitalist (part 2)

In part 1 of this post, I looked at three methods of venture capital that are all rational responses to current market conditions. In this post, I offer my advice to VCs pursuing the third method: artisanal venture capital.

Years ago, my dad — who loved the sea and made it his career — taught me to overcome seasickness by simply looking at the horizon. Pick a point far enough away and you can see that the world is not rolling, it’s just the ship you are standing on. No matter the weather, the horizon is always right there — straight, level, and unmoving.

To strengthen the hearts of those who — like us — are committed to practicing venture capital as an artisanal craft, here’s my attempt at a venture capital manifesto for this manic market we are all sailing through right now:

• Nothing lasts forever. We have no idea when the market will crash or return to something more normal. But it will happen. The best investments make sense regardless of market timing. They don’t depend on a quick mark-up or tons of fast, cheap money.
• Fight FOMO at every turn. Fear of missing out (FOMO) is venture kryptonite. I am haunted by a long and growing list of deals I passed on years ago and, sometimes, weeks ago. The constant reminders that we have left stellar returns on the table and the knowledge that we will inevitably continue to do so can become an unbearable mental burden — and it can push us all to move too fast on opportunities for fear of missing out. A FOMO investment is really just an attempt to avoid that future pain of having not done something that turns out to be great. That pain, however, is an unavoidable part of being a venture investor. Try to learn from your suboptimal decisions, but do not be hard on yourself. Tomorrow is another day, another opportunity will present itself, and preserving your sanity is critical to being able to make sound investment decisions.
• Signal is (mostly) dead. In a previous era, we could all look to a small but relatively stable set of well-known venture firms to provide a fairly reliable signal on our early-stage investment decisions. Back in 2003, if <your favorite Sand Hill VC> put a $20M check into one of your companies, that probably meant something about that company was very compelling and that your previous investment decision was likely to have been a good one. Back in 2003, if a well-known “operator angel” put some of their hard-earned personal cash into an unproven startup, it was a very significant signal. Today, that is much less the case. Firms that I respect greatly are sometimes writing checks just as feverishly and carelessly as the next firm. Operator angels are so flush with cash that many of them are writing more angel checks than they could possibly track or engage with. Signal is not completely dead today, but it’s very faint and hard to see. In this new era, we must each increasingly be our own compass.
• Capital doesn’t matter — and less is often more. We live in an era that is flush with capital. Angular’s entire $80M “seed fund” is smaller than some “seed” rounds. It would be easy to conclude that rounds are larger because they need to be larger. This is partially true, of course. There is an increasingly expensive war for talent and a big war chest can sometimes help fight off well-funded competition. But that is only half the picture. Having been a first-check investor for 15 years, my conclusion is that capital doesn’t matter. There will always be a competitor with deeper pockets. There will always be an investor ready to write a bigger check than you gave a term sheet for. There will always be a “better” VP Sales or a “10x” ML engineer who will demand a higher salary. But success is rarely if ever determined by these factors. I’ve seen massively funded companies fail spectacularly, and I’ve seen massively under-funded companies outperform, hire amazing mission-driven talent, and win customers against their bigger rivals. I’d even argue that staying lean — particularly early on — is a massive strategic advantage because it builds a more resilient DNA and attracts the right people. In the end, venture capital is not really about the capital — it’s about the venture. Angular is big enough now to lead any early-stage round we want to lead — but nothing meaningful about an early-stage company is measured in dollars.
• People are everything. This business is not really about technology or companies. It’s about people. Founders, early hires, advisors, partners, and other investors. One of the great things about being a venture investor is the opportunity — within certain bounds — to choose who you work with (effectively who you work for). Focus on finding and backing exceptional people. This is not just about talent — it’s about values, ethos, honesty and integrity. Those are the attributes that drive founders to succeed. Gaps in talent can be filled, but gaps in values stain a start-up forever. At Angular, we strive to build deep relationship with people that share our values and our approach to company building. This people-first formula has worked, will continue to work under any market conditions, and makes our work both rewarding and enjoyable.
• Truth is the goal and the market will find it. The economist Benjamin Graham famously said that “in the short run, the market is a voting machine but in the long run, it is a weighing machine.” This has never been more true than now. Ultimately it doesn’t matter how many term sheets a founder has, it matters how valuable the business they are building can be. Venture investing — like all investing — is ultimately a quest for truth. To get there, venture investors must develop a deep intellectual intimacy with the founders they back. This is true at the time of investment and throughout the relationship, until the exit. At Angular, we insist on building some level of intellectual intimacy with founders prior to investing. This is the only way to get to ground truth about a person and about the business they plan to build. In our experience founders that are willing to engage in this process are more likely to succeed in the long run.
• Seek the courage of your conviction. We all know the only way to consistently generate outlier returns is by being both contrarian and right. VCs use the word conviction, but in the absence of courage, conviction doesn’t create much economic value. The true terror — the true essence — of being a VC is when you are ready to make an investment that many of your peers think is crazy. At Angular, we are committed to making high-conviction and deeply contrarian investments. We are not afraid of being the only one to believe in something initially.
• Don’t just invest, be fully invested. Venture capital can sometimes be just about “getting on the cap table,” but I think it can be much more than that. Rather than just “invest,” I seek to “be fully invested” in the companies I’m working with. Investing is a one-time event. To “be invested” is a state of being. As a first-check VC, you have the rare opportunity to partner with founders in the most exciting and challenging aspects of building companies from nothing. In this market, capital is not scarce, but care and concern and genuine emotional and intellectual engagement are rare and precious. At Angular, we only invest when we are emotionally and intellectually prepared to be fully invested for the life of the company. Sometimes founders can only sense this later on in the journey, but they always sense it — and we believe that a high standard of care is far more valuable to founders than the dollars we deploy.
• Gratitude. This is the best job in the world. I can’t think of another career where a guy who can’t code gets to hang out with and work with the absolute smartest people on the planet — and listen to them as they map out the future of our civilization. Every day that I get to wake up and serve founders like that is a gift.

So that’s it. That’s my personal venture manifesto. These are the ideas that have gotten me through this market so far — and I think they are going to carry me through the years to come.