Human-Scale Venture Capital
We think venture doesn’t scale. Reasonable people disagree.
With news of multiple billion dollar venture funds clogging the airwaves the last few weeks, I thought I’d take a moment to explain why we believe so strongly in the opposite approach.
The manifesto at the core of our firm — which we actually spent a lot of time and effort refining and committing to — includes this line:
We are not focused on “scaling” our own business, but on growing the businesses we invest in, and the capital entrusted to us.
It’s an important part of our “People First” approach to investing, this idea that it’s never going to be about us our our brand, but about helping our portfolio companies and limited partner’s capital grow.
We think venture is a business of human relationships sustained over time, and that it’s really hard to do well. We think it requires focus and attention, and that part of our job is to create enough space for reflection that we can spot patterns our entrepreneurs can’t. We make a point of attending every board meeting, of putting our phones away, of being mentally and emotionally present when spending time with leadership teams. We come prepared, and show up on time. If you ever see us act otherwise, call us out on it.
We think it makes more sense to raise smaller funds more frequently, to better align the interests of entrepreneurs, VCs and LPs. In small funds everybody makes money, or no one does. Combining venture and growth capital in a single fund — as mega-funds sometimes do— also creates friction. We think growth capital is a very different business from venture, with a set of capital levers and incentives that are less aligned with the interests of entrepreneurs and common stock shareholders.
Finally, we think there are only so many great teams with great solutions to great big problems out there, and that you need all three of those things to deliver a venture-scale return. In the end the cap on the scalability of a VC firm isn’t the ability to raise capital in search of high alpha. It’s the ability to deploy that capital successfully through businesses with high beta, and we think doing so requires extremely great care and attention to detail.
In short, we think venture doesn’t scale.
We think it’s actually a business with dis-economies of scale, though it seems in some ways that idea has gone out of fashion.
Look… I want to be clear I’m not calling anyone out with this post. Reasonable people clearly disagree with our thesis, though I think it’s less a question of absolute truth and more a question of firm level strategy. I’ve often said business strategy really boils down to making a choice your competitors disagree with, and that is clearly the case here.
The question for entrepreneurs, then, is what’s more valuable to the business you’re building? Do you want a more personal, working relationship with a group of fellow operators who have the time and depth of focus to make a meaningful contribution… people who show up, pay attention, and ask how they can help? Or is a VC too busy to get into your hair actually a good thing, so long as they have pockets deep enough to give you all the money you need, at any price that keeps them over their ownership threshold?
I expect for most it’s a balance of those things, particularly as you move down the risk curve. If the idea of having someone to call who’ll answer is an attractive one, call us. We’re happy to meet and talk to great entrepreneurs, anytime.
Maybe we can even grab a slice someplace. We know how to find the good stuff.
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