My views on the market, tech, and everything else

A Dozen Things I’ve Learned From Chris Sacca About Venture Capital

1. “Capital just isn’t that important to the early triumph of a company anymore. Much more vital in those inaugural days is collaborating side by side with a founding team that controls its own destiny. Entrepreneurs who are empowered by seasoned advisors, but free to frame achievement for themselves, are much happier.” “When you’re just getting started, I’m the guy you want in your room to help design your product, build the funnel to convert, help you recruit your first couple of employees, get that shit done.” Not all investors are created equal. The winners are persistently the same relatively small groups of investors time after time.  Success not only has positive signaling effects in attracting the factors that drive success, but also talent enhancing effects for the venture capitalists themselves.

In short, the best talent, investors and partners are attracted to each other in ways that are self-reinforcing. By getting to work more with other great talent, investors like Chris Sacca actually become more talented and attract more talented people [repeat]. This is an example of what is known as “cumulative advantage.” If you genuinely have a great idea for a business that has the necessary tape measure home run potential payoff, talent is a far greater constraining resource than money. Getting access is the best investors is not only valuable but essential. What is the biggest startup success you see out there today that was financially backed by no one you have ever heard of?

2. “The founder needs someone to bring their A-game to. I did the analysis across my portfolio actually, and the companies I have, those that had leaderless seed-rounds underperformed.” “I think it’s important for anybody to have to sit down, put together a deck, and bring their A game to somebody else, who’s gonna listen. A coach, somebody, you feel accountable to.” “My job is to obsolete myself by series B.” “It’s all fun and games until you raise a Series B.”  People often find a niche where they are most effective and Chris Sacca is telling you where he feels he is most effective and having the most fun. Having a lead investor in a seed round who adds value is really important. If you are raising early stage money and the money is just money, you are settling for less. If you meet a founder and he or she says that all the investors added was money, they may have had a decent financial exit but they almost never hit a tape measure home run.

3. “Good investors are in the service business.”  “There are angels who have 75 companies and don’t call any of them ever.” The difference between Chris Sacca and a dentist who writes seed stage checks is measured in light years. Someone like Chris Sacca hustles on behalf of the portfolio company, has judgment and a network of people who know how to get things done. That they are both called Angels by some people seems wrong to me. Great seed stage/early stage venture capital investors are not a common phenomenon.

4. “I was involved in a company, where Bill Gurley is an investor and the company was thinking about hiring CFO, and Bill opens up his folder, and he’s got six CFOs, ready to go.  People of public company quality. I thought, ‘I don’t know six public company CFOs in the world.'” “Bill Gurley, will never take credit for that.” When a company gets to a Series A investment round or greater, a business increasingly needs a new set of resources if it is going to scale. Trains need to run on time. Systems must be built. New types of things need to get done. New VCs with new skills often arrive after the seed and A rounds and new management and talent starts to appear. People like Bill Gurley and Chris Sacca have a symbiotic relationship. Sacca is saying that by the time the B round happens he is ready to hand over his active/lead investor role to others. Knowing your highest and best use and what makes you happy is an important life skill.

5. “As investors, VCs are wrong more often, than we are right.” “As a VC, I’m wrong most of the time, so whenever any of the VCs tell you about the rules etc. it’s really, because we’re wrong all the time. You should expect me to be wrong most of the time. When I’m right, I’m really really right. That’s what you should expect from a VC.” Being a VC is all about hitting tape measure home runs.  You can be wrong often. In fact you can be wrong most of the time as long as you are very very right sometimes. It is magnitude of success that matters, not frequency. This is called “the Babe Ruth effect” which I have written about before.

6. “Any VC will tell you where they really make their money is on following on, it’s on doubling down into the winners. The things that are growing geometrically in terms of users, revenue that kind of stuff.” As the timeline of a business moves along, phenomena start to emerge from the nest of complex adaptive systems that is an economy or a market.  Spotting the emergence of a potential unicorn causes the best venture capitalists to double, triple or more down on their best bets. They didn’t necessarily see it coming when they did their first investment but later on, they know it when they see it. What was originally optionality over time starts to look more and more like inevitability.

7. “I do try to focus a lot on the entrepreneur as a person, I think that has fallen out of the equation recently…. look for driven people.” Getting a company through adversity and challenges takes someone who is driven to succeed. This is why venture capitalists prefer missionary founders to mercenary founders. They also know that strong founders and strong teams are their own form of optionality since they can adapt as the environment changes and opportunities arise.

8. “There are people who are great at being second fiddle.” Someone needs to do the work. In fact, everyone needs to do the work.  Startups with poseurs don’t survive. Public relations and hype only get you so far and if the founders start believing the PR you can put a fork in the business. It is done.

9. “Once you have FOMO (fear of missing out) on your side, you no longer have to ask people like [me] for money. They’re lining up to give it to you.” When doubt or uncertainty exist, people tend to follow other people. For this reason, if you can get a great lead investor getting each additional investors get vastly easier. The process can become like a snowball running downhill. That can have good results and bad. In the Internet bubble, Pets.com was the poster child for FOMO. Today Clinkle would be an example of FOMO creating big problems for investors.

10. “Create value before you ask for value back.” This is a fundamental principle of networking.  Chris Sacca shares this view with Heidi Roizen, who I wrote about here.

11. “Simplicity is hard to build, easy to use, and hard to charge for.  Complexity is easy to build, hard to use, and easy to charge for.” What Chris Sacca talks about here is why there is such a premium on design these days in venture capital. This, in no small part, helps explain the mass migration of companies up into San Francisco from the peninsula (designers are often allergic to suburbs).  As the great Startup L. Jackson once said: “Y’all talk about UX like it’s just another feature. For a user, it literally is the product. Full stop. Everything else is inside baseball.”

12. “It’s people with these broader life experiences who have balanced relationships who come up with the cool shit.” “College done right, particularly like a liberal arts school, is a lot less about the individual facts. You learn more about how to think, how to communicate, experimenting with personal boundaries, drinking too much, taking the time to go abroad.” This is straight up consistent with the Charlie Munger view that you need to have a latticework of different models to make good decisions. People who only know one or even a few models have “person with a hammer syndrome.” They have their one model and everything to them looks like nail for that model. A broad liberal arts education helps you become wise. Wisdom is a highly underrated skill.

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