The Deals That Change Your Life
I was reading an interview with Danny Rimer from Index discussing the acquisition of Figma and I was enamored with the way he spoke about both Dylan and the company. While Danny has an incredibly impressive array of investments, it’s clear that this one was special for him. As I was reading the interview it reminded me of a conversation I had with one of my mentors. They once told me: ‘Return on time will become your biggest constraint in VC. With that, ask “Will this deal change my life?”. For Danny, Figma was clearly one of those deals.
There are >70k startups in the US today (>100k globally). A subset of these deals will raise funding, but so much time can be lost in the FOMO of deals, chasing 1) deals that are raising, but unattractive, 2) deals that are doable, but uneventful and 3) deals that are eventful, but unwinnable. These steal focus away from what’s really matters - the deals that will change your life.
For me, I’ve tried to define these “life changing” opportunities in 3 ways:
Founders with generational potential. The people that are so exceptionally special that I believe they have the potential to lead revolutions in their industries and may provide the opportunity to back multiple times over our career.
Theses that I’m so deeply passionate about solving that if I don’t flip the card on them, I will be filled with doubt and remorse, wondering “what if?” These are the opportunities I would pursue myself were I an operator (rather than an investor)..
Market opportunities with such incredible potential that they would provide life changing economics (i.e. $100b outcome potential). I find this dovetails with the theses I pursue, but occasionally I’m shown something that is original, exceptional and provides such a huge market opportunity that the call option on that outcome simply can’t be missed.
When you set the bar that high, you bypass so many of the deals you’ll never get conviction on and/or aren’t competitive for. You don’t spend time on the doable deals or chase shiny objects. You spend that time on the exceptional - the ones that have true potential to become power law outcomes and that you want to spend the next decade working on.
Over the last few years, I’ve found this to be an incredibly powerful constraint. I rarely meet more than 2-3 startups per week. Instead, I focus my time determining what problems/theses I think would be worth solving the most, cultivating seeds with founders that I believe may build those life changing opportunities and working with them to help those opportunities become (hopefully) reality. This past week, I met with zero new companies - this is not an exaggeration, precisely zero.
When I was younger in the industry, I treated the number of companies I met with as a KPI. It wouldn’t be uncommon for me to meet 20 companies a week. Today, I meet with 1/10th the amount of startups and have had the most active last 12 months of my career, investing in companies that I’m incredibly proud of (two of which have already raised financing rounds from tier 1 VCs). That’s hundreds (if not thousands) of hours that I can pour into the deals that will change my life whether that be developing theses, cultivating those seeds or helping those founders realize their missions.
Often these life changing opportunities are underneath the surface. It takes more time to cultivate and discover to see the potential that others don’t see. Freeing up time by narrowing my funnel enables me to spend more time on trying to uncover that potential, ignoring the bias of a surface level pitch (I refuse to evaluate on pitches) and dig deeper into the underlying dynamics of the founder, business and market.
These life changing opportunities don’t just fall in our lap. As an emerging fund, we need to find them. There are 1k+ VC firms in the US, we need to beat them to win those deals that will change our life. We need to meet founders where they are, we need to know their markets intimately to arrive at conviction faster and we need to provide more value to those founders than any other firm in the market. This is no small task. This is why I spend my time on just a few theses within each of our themes, asking “if I could solve any problem in the world, what would it be?”. Then we research that thesis meticulously, develop a network of experts that enable us to add value and evaluate companies in that space and find everyone who is building anything adjacent to that space. When we find the opportunities that we believe are life changing, we throw the kitchen sink at the founder to win it. Collectively this process may take hundreds of hours PRIOR to investing a single seed stage check (sometimes it doesn’t result in an investment at all).
This might sound like an incredibly inefficient way to put money to work, because it is. But capital isn’t our constraint, time is. Every investment we make is a decade long commitment representing what could be 2-3 thousand hours of working with those companies. For me, I’d rather spend my time finding something life changing (and to do less deals), than to spend my life working on the investable, not the exceptional.
*Read this on Medium here