Why Some VC Investments Work Out, and Some Don’t. What I’ve Learned.

So as an investor, I was fortunate to have a strong start.  My first investments ended up performing quite well.  Investment #1, Pipedrive, ended up acquired by Vista for $1.5 Billion.  Investment #2, Algolia, is worth $2.2 Billion today and a strong IPO candidate for 2023 and beyond.  Investment #3, Talkdesk, is worth $10 Billion.  Investment #4 was part of Greenhouse, acquired for $800m+.  And Investment #6 was Salesloft, acquired by Vista for $2.3 Billion.

But as time goes by, you see the patterns.  What works, and what doesn’t.  And why.  And as more time goes by, they haven’t all worked out.

So a few things that didn’t work out for me at least:

• Momentum Investing.  This is piggy-backing on someone else’s hot investment, without being 100% sure on your own it’s the right one to make.  This has been a total negative strategy for me.  I’ve only done one material investment like this, but 3 tiny ones as experiments haven’t done much, either.  There are ways to make this strategy work.  But for me at least, I’ve learned make your own momentum.
• CEO of bit of a b.s. artist.  The above billion+ exits, the CEOs were all quite different.  Some caring, some a bit less so.  Some very transparent, some guarded.  Some sales-y, some very technical.  But all were honest.  What they did share, was true.  By contrast, every CEO I invested in that fudged the numbers … none are really going to go big.
• CEO good at sales, but CTO not that great.  This was a bet I made a few times, and I learned.  A CEO that is great at sales can often brute force things even to $10m, $15m ARR or more.  But if the product isn’t great, it catches up to you.  A truly great CTO, though, makes sure it doesn’t really catch up to you.  So now I try to only invest in Great CEO + Great CTO combos.

And a few things stand out in the “ok, but not great” exits:

• CEO not better than me.  Only other founders will truly get this, but being a CEO is hard.  Really hard.  If you aren’t a better CEO than me, it rarely leads to a big outcome.  But if you had the same traction I did, but are a better CEO … you can build a unicorn.  You really can in SaaS.
• CEO who couldn’t control burn rate.  Some CEOs just can’t get the burn rate under control.  Personally, I haven’t seen a great outcome here.  It’s one thing to let a high burn rate slide for a few months, but some CEOs literally don’t think there is anything they can do to make their cash last.  The best ones just find a way.
• Not really SaaS.  I’ve tried experimenting in investing in startups that have SaaS elements but aren’t really SaaS.  So far, no big successes here, either.  That’s likely on me.  I do understand SaaS.  But maybe I don’t really understand other things with recurring revenue nearly as well.

And a few things that happen even at the best of startups, that don’t, in the end, stop you from building a unicorn or better:

• A really, really rough year.  Almost every top investment I’ve made has had 1 year of slow or rough growth.
• Bigger, better-funded competitors.  The best founders recruit the best teams, which doesn’t always completely overcome better-funded startups.  But it does mean they can’t be stopped.
• Slow in the early days.  All my top investments (Talkdesk, Algolia, Salesloft, Gorgias, Pipedrive, etc) had no or little revenue in the early days.  We don’t all hit $1m+ ARR by month 12.  In fact, most of us don’t.  It took UiPath 10 years to get to $1m ARR!!

Now, if you have enough strong outcomes, the smaller ones don’t really matter that much.  But I’ve learned to stick to the plan.  Invest in SaaS companies with great CEOs + CTOs with a smidge of traction. That maybe the others … overlook.