After running companies for over a decade, we jumped into venture capital back in 2017 with the launch of our family fund.

Now five years later, we have seen successes and failures, collected valuable data and learned important lessons. Just when we are about to embark on the second half of our 10-year journey, we find it important to write down some notes to reflect on.

I’ve listened to over a thousand founders with their pitches over the years. Doing that instils a lot of patience as we know only a very small per cent of companies will be suitable for us. ‘No’ has become my new favourite word.

It’s (fairly) easy to spot the companies that likely won’t get very far, but it’s extremely difficult to spot the ones that will succeed (given that you even have exposure to them).

That’s the reality of venture capital, and it takes a bit of humility to accept this reality. Once one has taken a humble position, there are a couple of important additional lessons to learn. Let us get into those:

Your influence on companies and their founders is minimal

Most founding teams have been working with each other for a while and will (hopefully) continue to do so. They are in the ‘trenches’ together, and you are not fighting their war with them.

At some point in their journey, they decide to take money from you to continue and fight the battle. And while you can likely add a lot of value during a certain period of time by giving introductions and advice, there will be an expiration date where you need to step back and let founders continue on their journey.

Also Read: The right way of interpreting the corporate venture capital road

Not realising this on time can create a sour relationship, or worse.

Experience matters, and the best companies out there don’t need you

Good and experienced founders know what they want and how to get there. Ask yourself; if this company is great and money can be found in multiple places, why are they asking you what value you can add to their startup?

Fundamentals and valuations need to exist concurrently

I’m well aware that I’m writing this as we are moving into a bear market. However, I would have said the same a few years ago.

In order to succeed as an investor, you need founders that can attract (storytelling) follow-on capital for good valuations while the underlying fundamentals of the company you are investing in are solid. If any of those two components are lacking, it’s unlikely going to be a good investment for you.

Do your own research, as most investors do not operate logically

Investors in your network can have a million reasons for investing in a company. It’s unlikely that any of those reasons have much to do with what you are looking for and what’s good for you.

Be thankful for good referrals and introductions to companies, but don’t just follow others (no matter how well respected they are) and do your own research.

The statistics on success are correct

I wrote about the nine per cent rule a few years ago:

Among the successful companies, nine per cent provide investors with returns of 10 times their investments (‘home run’), compensating for failed investments.

Our data continues to show that this is a correct assumption. Whether they will succeed is entirely up to them. No matter how many board and advisory seats you take on, you are not on the ground and won’t be able to fully grasp the specifics of the company.

Don’t overestimate yourself as an investor. No matter how successful you have been in a previous life before you became a VC, you are a source of money for founders (and if they are good, money can be found anywhere).

So be careful not to waste anybody’s time with your (well-meant) advice. Do throw your fund thesis out of the window and recognise that success all depends on the talent of the founding team. Be grateful if great founders let you invest in them and take you on their journey.

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This article was first published on September 12, 2022

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