The biggest challenge is how to play Offense and not Defense.
As a new VC, you want two things. You want to establish yourself, and your brand, and your track record. And also. Not get fired. Not blow all the money.
The natural reactions therefore are:
- To search out more co-investors.
- To search out more comfortable deals.
- To search out logos and more well-known deals.
- To search out “cheaper” deals so you don’t have to invest as much (and also can’t lose as much).
- To search out deals with traction, because the social proof internally with the partners makes getting a deal done internally easier.
These strategies work. But they don’t make you as much money.
You make more money if:
- You own more. This means fewer co-investors, and less social proof.
- You invest earlier. This way you can own more for less. But it also means you have to take more write-offs, usually. Or.
- You invest later, but you put a lot more money in to own more. This can be scary.
- You find the great deals before they are obvious. This can mean before the traction and before other social proof.
Most new VCs, in some ways, play defense. I did. I bought less than I could. I did some bets based on traction. They played out well as an initial cohort.
But if I’d played more offense, they would have done even better.
I’ve played more offense since.
(note: an updated SaaStr Classic answer)