Thread by @dunkhippo33

Some random musings on startups and funding.

As an investor, it really bums me out (most of the time) when I have to pass on a company. As a human being, you want to help wonderful ppl as much as possible, esp as a former entrepreneur.

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1) And the worst pass is when there literally is nothing wrong w/ the business.

You meet the team -- they're thinking about things in the seemingly right way. They have drive and hustle and have made things happen in a focused way. Etc.

2) The reality is that for every investment check I'm able to write, there are ~4 additional companies I meet who are at the same caliber.

But I can only pick 1.

3) What most ppl don't realize (and I certainly didn't as an entrepreneur) is that everyone has a limited amount of capital.

That's just life.

4) Microfund mgrs often say, "If I could 2x my fund next time" then I'll have enough.

I can tell you it's still not enough. You go beyond your scope of what you see. And there's still ~4 addl great cos for every investment that you could be funding but don't have the $$ for.

5) So then what happens? How do you pick? A few ways:

a) You create a scope/mandate.

Maybe it's no HW. Maybe it's geography-bound.

Whatever it is, you narrow your scope and focus so you can be remembered for that scope.

6) Another way - b) You create a strike zone. And try not to go outside the strike zone.

Things like valuation. Or assess differentiation/competition. Or things like that.

7) Your fund size is your strategy. E.g. For us, as a small fund, we try to avoid capital intensive or long sales cycle cos. If you are a small check, you are looking for things that are bootstrappable & don't need to raise much to protect against dilution.

8) Honing in on your strike zone of what you will do (and not do) is part of the microfund mgr maturation process.

Saying no to great companies who don't fit the strike zone is hard. It's a rite of passage in some ways. You know they will be successful.

9) On the flip side, part of the reason why fundraising takes a long time, is finding out whose strike zone you do fit.

It's hard to find that on investors' websites.

10) Lastly, there's a lot of luck.

Luck in both an investor picking well (of the 5 potential companies -- which one is the highest returning? That's unclear) and luck of the entrepreneur being picked.

For these reasons, that's why I think there should be more investors.

11) I wish I had understood all of this when I was building my startup.