Why "Signal” matters more than ever

Frank Tanner of Morgan Creek has a fabulous framework for evaluating managers. He calls it the “5 S’s” – Source, Select, Secure, Support and Signal. As I think about how we’ve always handled our own performance management process for our team, it very much aligns with these 5 S’s focusing on sourcing, research / market intelligence, deal evaluation / execution, portfolio support and branding / marketing.

For a long time, I found little value in branding / marketing as part of an investment firm. From my naïve POV, our job was to invest in non-consensus companies, which very much meant that we should be finding opportunities that others weren’t. I saw folks preaching that VC was an “access” game and dismissed that as group think chasing momentum in over-priced deals. This led me to prioritize research to find the uncovered gems, knowing full well that I wasn’t going to beat Sequoia (either in clout or in check size) in an all-out dual.

Things changed dramatically when I started Equal. Some of our readers have likely heard this story in various different forms, but the process of starting a firm required me to build new skills. As one of my strongest LP connections told me when starting the firm, “Rick, I love you, but you have no juice…you have no brand.” They weren’t wrong. I had a solid track record with some early unicorns and real DPI, but very few in the venture community knew or cared who I was. This made it incredibly difficult to raise.

As we finally got Equal off the ground, I had put more effort into developing a brand – more so because this was clearly something LPs cared about, rather than me thinking it would actually benefit our investment process. It wasn’t until a friend of mine called me out during one of our peer circle sessions over Covid that things clicked. As long as I’ve been an investor, I have always written very detailed research reports on the spaces I like to invest and memos for deals I like to invest in (even a seed stage investment generally warranted a 20+ page memo). While I have many faults, seldom do folks fault me for the level of work and thoroughness I approach a given space or investment opportunity. To me, this process has been essential for me to build conviction as an early investor building a track record and I found warmth in the security blanket of being able to show my homework as if to say “Even if this deal doesn’t work out, look at all this fancy work I did. I swear, I’m not dumb or lazy!”

One day during one of my peer circle sessions, I was outlining my work for a recent investment when one of the other participants called me out saying, “Rick, you do all this work, but none of it ever sees the light of day. Maybe 10 people see this. Why are you being such a wuss?” At that point, I had never shared my theses or work publicly. Folks knew a few spaces I was broadly interested in, but I didn’t want to box myself into a corner and I was afraid that folks would poke holes in my work. As I outlined my rationale, the other participant in our peer circle told me “That’s an ego problem, not an economic one. You’re worried that people will disagree with you and hurt your feelings. Meanwhile, holding this back is hurting your companies, your firm and yourself. You need to put this out there and you will figure out whether people believe you or not, but doing all this work to let something sit on a hard drive is pointless.”

From then on, we started publishing some of our research reports (some of which have been viewed hundreds of thousands of times) and have become increasingly prescriptive as to where we would like to invest. While the messaging behind what Equal invested in was previously murky (which was a consistent point of feedback for passes during our Fund 1 raise), we now were able to tell people exactly what we were looking for. Before long, we stumbled on the “prepared mind” narrative and it’s become synonymous with our firm’s brand since.

This single push ultimately became one of the most impactful catalysts for our firm. All of sudden, I had VCs and customers reaching out to me to show interest in the findings that we developed. These folks became thought partners, expanding our universe of ideas and ultimately the networks that we could bring to a company. This also greatly benefited the companies – every single investment we made that had a thesis deck behind it (or what we have subsequently coined as “Prepared Mind Deep Dives”) was ultimately marked up…every single one. These reports became rally cries of a sort. We developed conviction as a team, we amassed a critical mass of customers/partners for that thesis through that process (generally aiming for several million dollars of pent-up revenue demand prior to investing) and could assess the interest of potential down-stream investment partners based on the work we published. While this work was extremely slow and methodical, it did enable us to marry our conviction behind a company with the connections and capital necessary to give these companies a marginally better chance at winning. This was immensely impactful in helping us find off the beaten path companies and heling them transition from “non-consensus” to “consensus” – where we believe the alpha of venture capital exits.

Over time, things have changed. We continue to be extremely research-oriented, but the velocity of seed makes the job of finding needles in a haystack more challenging than ever before. We still “hunt” (which is what we call our out-bound driven approach to finding the off the beaten path opportunities), but we certainly are seeing a lot more founders walk in our door than in the past. Over the last few years, we’ve developed and expanded our “hatch” strategy, which is working with repeat founders to start their next great company. Over the last 2.5 years, we’ve now done 6 of these and the current or exited combined enterprise value of the founders’ prior companies is nearly $10b. In each of these cases, we’re still doing our exhaustive research, amassing a critical network of customers and sharing our research with downstream partners to empower that “rally cry” effect, but are gaining access to founders that normally wouldn’t work with a firm like ours (we had previously invested in the founders’ prior companies in just 2 of the 6 cases). When I asked one of our most accomplished teams about why they decided to come to us, they said “I was asking folks who knew this space really well and yall’s name kept on coming up. I hadn’t even heard of you or Equal, but I realized that if you knew this space as well as others said you did, you could not only be really helpful, but also set a really powerful signal for future rounds.” I thought to myself, “signal”?

Fast forward to 2026, I’m seeing some companies raise at $1b valuations on <$1m of revenue. Those companies may be in the same space with identical metrics to companies that go unfunded. Why? Because of signal. I was speaking with a peer recently and he was telling me about one of his portfolio companies that recently completed its Series A with a top tier VC firm. We know each other well enough that I spoke to him candidly, “To be honest, I’m surprised. I heard that company was struggling, is it working?” He responded, “Not really, but Sequoia was in the seed so everyone was chasing it. Process was ferocious.” The single fact that Sequoia was involved in the deal (in what was a miniscule check compared to the quantum of capital they manage) incited a bidding war for a company that was not objectively performing. The reason why? Because Sequoia has signal.

We’re in an investment market that subjectivity reigns supreme. For better or worse, objective financial performance means nothing compared to the heat and momentum a company can generate behind it. We see high growth companies with outstanding metrics raising at single digital revenue multiples and others with comparable performance raising at several hundred times revenue. As a value investing disciple, it breaks my brain. Ultimately, these companies need to measure up to the valuations they’ve raised at, but undoubtedly, it’s far better to have these conditions as your tailwinds, than as headwinds. Being on the right side of that equation not only means less dilution and dramatically lower cost of capital, but it can be a powerful tool to help attract talent, customers and additional financing partners. All of this won’t win the game for you, but it certainly increases your margin for error. This forces us to evaluate with our companies how to turn market perception from “non-consensus” to “consensus”.

In a market that is rife with subjectivity, determining how to set signal is paramount. Often, founders can do this themselves. With most of our “hatches”, the founders are driving the signal far more than our research and business development support. But for off the beaten path opportunities, investor-led signal matters more than ever before. We’ve seen investors go from ignoring founders to clamoring after them once they have a reputable lead (who wouldn’t want to co-invest with a multi-time Midas lister?). We’ve seen customers do the same, racing to be the 2^nd or 3^rd “early-adopter” to a nascent company, after seeing it validated by someone else. As a partner to these companies, we repeatedly ask ourselves, “How can we better help this company show signal in the market?”.

We press upon ourselves to help set that signal through research, our “bridger’ networks and our industry summits. It’s more powerful in some areas than others, but a friend of mine at a top-tier venture firm said it best “Rick, if you guys do anything in these sectors, we’re going to take a hard look. But the second you go outside of those, we couldn’t care less.” Harsh, but ultimately very clarifying.

Once successful, signal sets itself (I don’t think Bill Gurley or Fred Wilson would need a 20 page research report to get people excited in a deal they are doing), but as an early venture professional and/or emerging manager, finding your path to signal is as existential as oxygen.