Why do you win?

When I first started in venture capital, back in 2001, I used to fund funds.  I worked for an institutional investor that invested in both venture capital funds and later stage growth deals.  My job was to figure out why certain firms were winning and why they might continue to win.  

Part of this, of course, involves looking into the past.  Why someone did well previously is the first clue to figuring out whether or not that would be sustainable--but it isn't necessarily predictive.  Many of the reasons why someone had previous success might have to do with unique windows of opportunity that no longer exist.  

Furthermore, for many investors, once they achieve success doing one thing, they often move onto other things, assuming their success will follow them.

They raise larger and larger funds, for example, after building up a track record of successful angel investments.  Just because someone let you tag on to their seed round doesn't necessarily mean they're going to look to you to lead the Series A in the future, especially if you're going head to head with Sequoia, A16Z, or Union Square Ventures.  

Over the past few months, I've been wrapping up fundraising on Brooklyn Bridge Ventures' second fund--and these are the types of questions I get from LPs all the time.  With all of the various investors out there, with the transparency brought to the market with things like Angellist and Product Hunt, how can I continue to be successful in the future?

One thing that never made me feel comfortable is the idea that I might be smarter than anyone else.  There are a lot of smart people in our industry--and there's so much uncertainty in the startup world, even if you could say that you were smarter, it's not totally clear that just being smart wins in venture.  

The best bets often look pretty stupid, if we were honest with ourselves.  There were a million reasons not to do Uber, for example--regulatory hurdles, first time VC backed founder (Remember, Ryan Graves raised the seed round as CEO, not Travis), the fact that it required individual launches in each city, premium product, etc, etc.  

It's this kind of risk taking that I can comfortably hang my hat on.  In NYC, there aren't a lot of funds that are taking the level of risk that I have--and I think that has paid off.  Somehow, I seem to have done a good job figuring out which huge risks are better payouts than others, but more than anything else just this willingness to dive in when things are "too early" is probably the biggest driver of my returns:

  • GroupMe was a hackathon project.  
  • chloe + isabel was pre-product
  • Singleplatform hardly had any tech built
  • Tinybop was pre-product
  • Canary was a pre-product hardware company pre-presale
  • Clubhouse was pre-product
  • Orchard was pre-product
  • goTenna was pre-product
  • Ringly was barely at prototype

In this market, that's sustainable.  If anything, as other firms mature, they're getting larger, and less willing to write small checks for unproven companies.  Plus, it's a lot of work... and who wants to do *more* work as they become more successful as an investor?

Doesn't sound smart at all.  :)

If you're an investor, why do you win?  Can you sustain that going forward in a world that becomes more connected and more transparent?

What about as a startup?  As a professional?  What makes you actually good and is it repeatable?  What would prevent your success in the future?

Scary thoughts...