VCs don’t have diversified portfolios partially b/c LPs don’t want them too—they’re already diversified.
This points to another interesting dynamic:
In venture, it’s often unclear whether your customers are your founders or your LPs.
This points to another interesting dynamic:
In venture, it’s often unclear whether your customers are your founders or your LPs.
Most will say founders are their customers b/c that's the popular answer, and some will truly mean it.
Others will, in practice, treat LPs as customers, b/c they understand that without LPs, there’s no $ for founders.
So VCs optimize their product for LPs
Tail wagging the dog
Others will, in practice, treat LPs as customers, b/c they understand that without LPs, there’s no $ for founders.
So VCs optimize their product for LPs
Tail wagging the dog
I predict LP/GP dynamic will evolve in the future (founders will be customers), + it will mimic how the GP/founder dynamic evolved
It used to be unclear for whether founder's customers were their actual customers or VCs
Today, it’s hard to imagine, but true
It used to be unclear for whether founder's customers were their actual customers or VCs
Today, it’s hard to imagine, but true
“Back then”, it was harder to get a co off the ground:
Harder to raise money, harder to test out new ideas quickly, harder to reach your customers, and harder to scale something without raising money first
As a result, founders were more likely to pitch what VCs wanted to hear
Harder to raise money, harder to test out new ideas quickly, harder to reach your customers, and harder to scale something without raising money first
As a result, founders were more likely to pitch what VCs wanted to hear
As such, the balance of power was on the VC side. Founders marched onto Sand Hill road and pitched the oracle VCs, hat in hand.
Angel investors were literally called “angels” perhaps to signify how appreciative (& desperate) founders were for their money.
Angel investors were literally called “angels” perhaps to signify how appreciative (& desperate) founders were for their money.
Overtime, as it became easier for founders to get companies off the ground—and to prove demand even before building anything—the balance of power shifted in favor of founders.
VCs moved to SF. Founders no longer begged for money, instead, VCs begged founders to let them invest.
VCs moved to SF. Founders no longer begged for money, instead, VCs begged founders to let them invest.
The courting dynamic became inverted.
WhatsApp picked Sequoia. Not the other way around.
VCs were suppliers, and the internet commoditizes suppliers
To differentiate, VCs "added value" and became "founder friendly"
Those terms came to being to reflect the new power dynamics
WhatsApp picked Sequoia. Not the other way around.
VCs were suppliers, and the internet commoditizes suppliers
To differentiate, VCs "added value" and became "founder friendly"
Those terms came to being to reflect the new power dynamics
As a result, founders just need to focus on their actual customers and investors would follow.
Chase customers, and VCs will chase you.
“Build something people (i.e customers) want” is obvious today, but was foundational in late 2000s.
Chase customers, and VCs will chase you.
“Build something people (i.e customers) want” is obvious today, but was foundational in late 2000s.
Which leads us back to VCs/LPs.
In the future, I predict VCs true customer will be founders, and LPs will adjust, just like VCs did.
Again, "Founder friendly" is trite now, but at the time it was differentiated.
In the future, maybe LPs will say they're “VC friendly”
In the future, I predict VCs true customer will be founders, and LPs will adjust, just like VCs did.
Again, "Founder friendly" is trite now, but at the time it was differentiated.
In the future, maybe LPs will say they're “VC friendly”
What might cause change?
As infrastructure improves, it’ll be easier to start funds.
As we get more data, it could become clearer that founder-centric strategies outperform.
With new professional networks (stay tuned ;-), reputation will be easier to ascertain.
/fin (for now)
As infrastructure improves, it’ll be easier to start funds.
As we get more data, it could become clearer that founder-centric strategies outperform.
With new professional networks (stay tuned ;-), reputation will be easier to ascertain.
/fin (for now)
