I don’t know about mistakes … but things can lead to suboptimal investing that I’ve observed across many firms and folks over the years:
- “Star Fracking”. This is a term a lot of VCs use re: investing early, at very high prices, in proven founders. Done right, this is a total winner of a strategy. But … stars don’t seem to manufacture product-market fit better than anyone else. So you need to be careful not to confuse the ability to execute the next time even better, at a very high level … with the ability to conjure product-market fit from thin air.
- The Hyper-Driven Alpha Male. A lot of folks are driven to the hyper-driven alpha male, that draws you in. Look — hyper-driven is important. And alpha works too. But … there are different ways to scale a peak. And sometimes, you get there later in the life of a company, you don’t always start there. The quiet, but still hyper-drive founder can often outperform the boisterous one. We all learn how to be great public speakers later as CEOs. We all do. We don’t all need to be one on Day 1.
- Seduction of Traction-in-the-Present. This is one we all fall for. Having a bunch of great customers today yes, is a proof point. But if it doesn’t mean something impactful for a big market 3-5 years out … those customers don’t matter. Traction is critical but it can also create a sucker bet if it’s not Traction in The Future as well as the present.
- Pattern Matching of Industry (vs. Situation). Look, we all have to do pattern matching. But matching to MySpace or Siebel is just too long ago. People, stages and situations are the same as they’ve been for a long time. That matching never gets dated or old. But after about 5 years, industries change so much, that pattern matching companies and the state of industries from 8-10+ years ago can be dangerous.
- Betting on Very Good (vs. Great) Founders, in General, and Combined with Traction. This is related to the Seduction of Traction. “Merely” Very Good founders — founders just as good or better than me, let’s be clear — rarely can really build a unicorn. It’s just too hard to take something in B2B that far. Only the best ones can do it. We can get lured in by Very Good, Very Eloquent founders with 50 or 100 or 200 customers. With something real. But if the founders aren’t truly, epically great … at least in SaaS and B2B … Unicorn odds are just too low. Or they sell at $50m or $100m — when any sane person would. Which is great. Just not that great for venture returns. That’s all.