And this business will not disappoint — you will find the best and worst of human behaviors when you make (or lose) big money. Because there are two primal drivers — those imposters called greed and fear. This business brings all the highs and lows of these two demons. Dysfunctions within venture funds, their founding teams, CEO desire for global dominance, street fights with competition, slick maneuvers, politics, ego, drama — you name it, and this business has it all. Not getting caught up in this theater and still staying true to yourself can be a challenge. I could share some great stories of power, greed, backstabbing, and more, but I will save the gossip and entertainment for People magazine. My goal was to bring out the best of this business and leave the reader empowered and inspired. To stay persistent and focused over the long haul despite all these primal challenges requires some tenacity. How do you build a fair and balanced core in your ethos, your DNA, and your daily persona?
Until our portfolio company becomes an enduring milestone, we must fight their fight with every inch of our lives, blood, sweat, and soul. Our work is done not when we make great returns but only when we help fulfill the dreams of founders. To forget this basic rule of venture investments is to forget our purpose. For it is not our goal to mindlessly multiply small pieces of green paper and proclaim Midas list ranks on our resume — that is a fool's errand for those who, while getting rich, leave behind a trail of carcasses of broken dreams. We are here to help those dreams come one step closer to reality. We are here for empowering the crazy ones with our gifts of time, money, intellectual insights, and our wonderful relationships. All of this to serve for the greater good of society. That should be our singular goal.
To find the founder whose vision is to serve for the most good of the society is not an easy task. In the beginning, all founders sound alike — their mission statements filled with zeal and passion. They serve up PowerPoints to our demand for “billion-dollar” markets. It is your job to dissect the frothy shapeshifters from the authentic forces of good. How do you make value judgments when faced with the promise of fantastic returns? Juul — the e-cigarette vaping company — grew the fastest in recent years, raised the most amount, and can generate the best returns for their portfolio. But if you were to make a lesser return in another company, say one that's addressing cancer, would that align with your values? Would your limited partners (LPs) be happy? Would you be satisfied with the trajectory of your career?
Indeed, “values over valuation” has been one of our larger business challenges — if we chase the promise of an IPO and triple-digit IRR but damage the socioeconomic fabric, where do we draw the line? I know one prominent investor who chooses to not use the portfolio company's technology for defense markets. The CEO was blunt — our technology can kill a lot of people, but we will never sell it for that purpose. The company would be valued at least 10 times more if it went down that path, but its bedrock values keep it on course, staving off the monkeys of greed. If you do not establish the foundation of values, you could make money, lots of it — but then you might feel purposeless, adrift in the sea of capitalism.
What set of values will become your internal compass to help you make the right decisions when you stand at the tougher crossroads of our business? As you build a framework of values, this work is like a journey, best illustrated by C. P. Cavafy's poem “Ithaka”:1
Better if it lasts for years,
so you're old by the time you reach the island,
wealthy with all you've gained on the way,
And we are here only for a short while, even though VCs are desperately trying to solve for death.
Come now, you who say, “Today or tomorrow we will go into such and such a town and spend a year there
and trade and make a profit” —
yet you do not know what tomorrow will bring.
What is your life?
For you are a mist that appears for a little time and then vanishes.2
So this book weaves in lessons from these three areas — managing risk, service to founders, and above all, developing a framework of values.
AND WHO AM I TO WRITE THIS BOOK?
There are no experts (nor will there ever be) in the world of venture capital. It's like the list of top Hollywood stars or top-performing mutual funds — each year, you have someone new at the top. In this constant churn, we are all learning this craft, and apprenticeship is the name of this daily practice. Those at the top are humbled by the forces of the unknown: risk and uncertainty. In recent times, their own arrogance and exploitative behavior have brought their downfall. And those at the bottom of the pyramid are striving — a combination of luck, some skill, huge networks, and the advantages of market timing lift them up.
Jorge Luis Borges wrote, “I am all the writers that I have read, all the people that I have met, all the women that I have loved; all the cities that I have visited, all my ancestors.”3 With all that and more, being a storyteller at heart, exposure to this business makes it easier for me to share the lessons. Having tasted all three layers of the founder-GP-LP cake as a practitioner in Silicon Valley and having invested in over a hundred companies over the past decade, I have made a lot, lost a lot, and learned a lot. These lessons, some very expensive ones, are offered in this book. In my quest to learn the nuances of this business, I have compiled insights of proven investors from firms like A16Z, Benchmark, First Round, the Foundry Group, True Ventures, Sequoia Capital, and Union Square Ventures, to name a few. I have also woven these with the wisdom of investment giants like Warren Buffett, Charlie Munger, and Nicholas Nassem Taleb because their observations can be applied to most parts of our business and life. And finally, I sprinkled in some wisdom from philosophers and Nobel Laureates (like Bob Dylan).
Having co-invested with some of the best-in-class, and occasionally with the pseudo-intellectuals, opportunists, and carpetbaggers, you experience the people problem in our business. You never know the true nature of a person until you reach the extremes of success or failure. Big exits drive greed. Failure gets everyone scampering away. Blame is pinned on some macro-event, China, or circumstance. Amidst these roller-coaster rides, I learned two things well: (a) how to avoid the self-serving and the greedy and (b) where I could not avoid, I mastered the art of projectile vomiting.
As Rudyard Kipling wrote in his poem, “If”:4
If you can make one heap of all your winnings
And risk it on one turn of pitch-and-toss,
And lose, and start again at your beginnings
And never breathe a word about your loss…
Yup, I've experienced a bit of that. So those are some good reasons why I'm qualified to write such a book.
If you feel the ROI on this book has not been to your high expectations, dear reader, I am sorry I have wasted your time with this rambling repository of riffs, anecdotes, and generally available kitschy stuff. And yes, I'm happy to refund you a full amount. Or make a donation to a charity of your choice. For all others who get featured on that Forbes Midas List after reading a page or two of this book, do feel free to send me a few points of that carry. I'm saving up to buy a winery in Hawaii as I approach my retirement years. Aloha to health, happiness, harmony, peace, abundance, and carry.
WHAT SHOULD YOU KNOW