What did you learn from your worst venture capital investment?

I’ve learned two simple lessons from my worst investments:

  • Break rules — but make sure your key criteria (and playbook) are met.
  • Don’t skip on the next-level diligence, even for speed.

The first one took me a while to learn. You can’t keep investing in the same companies, at the exact same stage, same valuations, etc. But all investors basically come up with a playbook. It allows you to move quickly. My playbook has evolved, but a key part of it today (that I didn’t fully think through in the early days) is super happy customers and super high NPS. High churn is OK in the early days even. But the NPS/CSAT has to be there. When I’ve cut a corner here and invested in startups with customers that aren’t super-happy, it hasn’t worked out as well.

To combat stagnation in the playbook (and also to make sure the pipeline is properly inclusive and broad), I still meet with interesting start-ups that seem close, but not actually in, the sweet spot of the playbook. Oftentimes you then learn they really are in the sweet spot once you meet.

The next one is a tough mistake not to make. You want to move quickly. You can’t do every single bit of diligence. But sometimes, the investment isn’t quite at the stage of maturity you think it is. That extra diligence will uncover that. Trust — but verify. I’ve had two investments that claimed, for example, certain revenues were recurring revenues that really weren’t. Those companies didn’t fail. But that should have been a flag for me. They haven’t performed as well.

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Published on July 21, 2018

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