Career Archives

Myriad Money Motivations

If you still follow me on Twitter (sorry if you still do), you may have noticed that I’ve been working out some thoughts related to the impact of how much money is not only in the Bay Area today, but how much more may come in. Yes, I know that global interest rates are low and that some unforeseen event could make people pull back, but the scale of money looking for direct and indirect investment is so large, it may take a few huge events to rattle those markets to the point of clawback.

If there’s a lot of money here, then, what are the various motivations of those money sources? And, how do those motivations potentially affect and/or alter the scope of what startup companies and early-stage investors have traditionally done?

Financial Motivations: When the investor, like traditional VC firms, are looking purely to maximize the financial return. At the end of the day, VC firms are judged some standardized fund metrics like IRR, distributed cash, and so on. As a variant, we also have investors with “Direct Motivations:” Some folks who traditionally didn’t have access directly to companies would use VC firms to help gain access, to help them attract deals and pick good deals, and then manage those investments to exit. Over the past few years, many of these investors who were once indirect are becoming increasingly more direct, bypassing the fees and gating structures of VC firms to invest right on the cap table of a startup. These are still financially-motivated investors.

Strategic Motivations: Some investors, like corporations with cash on their balance sheets, are looking for earlier access to cool companies, teams, and technologies — I have seen them starting to co-invest as early as the Series A (alongside a VC firm they know or recognize) and even in some cases leading what has traditionally been a Series A round, in terms of size. Usually in these cases, the financially-motivated investors (above) have passed on the opportunity, as these rounds can at times contractually restrict the startup in some way.

Deal Access Motivations: As I mentioned those with “Direct Motivations” above, some of those money sources are investing in new, smaller funds to pick off deal flow before it gets to the traditional financially-motivated VC firms, many of which have grown over time to the point where they need larger outcomes. Some of these smaller funds (under $50M) have investors (LPs) which prioritize “turning over lots of cards” in order to discover deals earlier in the company lifecycle and potentially pick off the next winner.

Educational Motivations: Like those investors who are strategically-motivated, some are interested simply in learning more about a certain industry (perhaps focusing on a vertical fund in a certain industry) or a specific geography — for instance, an LP from overseas who wants to learn more about the Seattle startup ecosystem, or the space startup ecosystem, or maybe the space startup ecosystem in Seattle.

Diversification Motivations: Outside the U.S., other countries with growing or shifting economies may have an incentive to seek out diversification (such as currency diversification), where that local money is looking for alpha outside its own borders.

These myriad motivations add up to help create an environment in the Bay Area that’s different from the past. Not all money sources are motivated by pure financial return — depending on the source, they’re looking for a different kind of alpha, for deal flow, for earlier access, for talent, for companies to acquire (but not at VC prices), to learn more an industry or ecosystem, or to diversify their cash positions. And these myriad motivations of the money sources may change what their managers elect to invest in, how often they invest, and so forth. I need to think more on this topic and its ramifications, but wanted to share in case others had an opinion. I’d be interested to hear your take. Thank you.

Quick Notes From Laguna Beach (WSJ Live 2016)

As if working in venture capital wasn’t already a great job, my colleagues from my venture partner role at GGV Capital surprised me with an extra ticket to this week’s WSJ Live event down in Laguna Beach. It was also great to see some of my WSJ reporter-friends like Rolfe, Geoffrey, and others at work — though didn’t get to bump into Mims or Scott Austin, sadly! Despite some weather and Presidential tarmac delays, I made it down for all of Tuesday’s programming, ran into old friends, and made some new ones in a gorgeous setting — have never been to Laguna before, and even folks from LA commented that they often leave their own paradise to jet down to see the coastline a bit further south.

With a few days separation now, I wanted to capture the top three takeaways I gleaned from the event:

1/ The Future Bundling In Content Delivery Networks: This isn’t a topic I pay close attention to because my media sources are pretty narrow and defined, but I know for the majority of 330M Americans, they consume tons of media through cable networks, satellite, social networks, and more. The WSJ folks had sessions with AT&T and Time Warner to discuss their merger and new offering, as well as execs from Facebook to chat about how they balance self-expression against sharing too much sensitive information (such as questionable live video feeds). What occurred to me in overhearing these chats is that, when you step away from all the verticalization and mergers of carriers and growth of social networks, what we see is that the tech incumbents (FB, AMZN, GOOG) and traditional carriers (ATT, VZW) are on a collision course to deliver us content in a bundle. And, they could compete so much that it drives the price down so far, it will create huge new markets for new ad models and networks. Absolutely huge. It’s not a sector I know well, but there’s no doubt about the size of attention and money at play. (Personally, I think Amazon is in the strongest position with a strong Prime membership base that they can shove more services into and distribute Echo in the home to penetrate further.)

2/ The WSJ Audience Is Very Curious About China: From about 8am to 5:30pm, minus lunch, assume there was about four (4) hours of chatting with guests on stage. I’d say that of that total chat time, about 20% of it somehow touched on what’s happening in China. Tuesday kicked off with a 1:1 session with Jean Liu of Didi (see below), ended with a fun panel on financial markets with Benchmark’s Bill Gurley and Fang Bao of China Renaissance, who touched on the desire among investors in China to invest outside the country for RMB diversification, and in the middle, included a discussion with GGV’s Jenny Lee (who I am very lucky to work with) on the global ambitions of large technology companies in China (expect more overseas acquisitions for talent, brand, and chip- and machine-level innovation), as well as how it’s really business model innovation that’s driving the disruptive companies that are emerging from China — business models which are borne out of a different environment given the scale of China’s domestic market. The WSJ team organized a very tight schedule, so I’m guessing this was a carefully considered editorial decision to draw out new perspectives on China for their audience. In fact, this interest in China is one of many reasons I was excited about the opportunity to be a venture partner with GGV, as I can be slightly more exposed (second-hand, of course) to what is happening across the Pacific and learn from those who know it well.

3/ The Definition Of A “World-Class Operator.” You may have heard someone mention this adjective to describe a tech exec – “he or she is a world-class operator.” It’s a term that can just be thrown around without stopping to think about what that actually means. After I saw Jean Liu from Didi speak, it hit me — SHE is a world-class operator. She is someone who can natively operate in two large foreign markets, handle press, deal with employees, recruit execs, strike deals, and seamlessly move between extremely dissimilar economic and cultural environments without skipping a beat. So the next time you hear someone brag about so-and-so being a “world-class operator,” make sure that person can actually operate like Liu.

Save The Date: The Post Seed Conference, 2017 (Dec 1st in SF)

As you know, each December a small group of investors (which includes me, Bullpen, Vator) produce a conference, “Post Seed.” I’m excited to announce and share that the 2016 version of this conference will take place in San Francisco on December 1st. For more information here: www.postseed.co

I know there are thousands of events in the Bay Area, so Paul Martino (from Bullpen) and I thought long and hard about if we should do another one. We ultimately decided “yes,” but on the condition that we would produce and deliver a high-quality, high-signal, no-BS and no self-promotion event.

And, I am confident we have succeeded.

Everyone speaking at Post Seed 2016 will deliver “real talk” and we are working closely with our moderators from The New York Times, Forbes, The Information, and The Wall Street Journal to keep people honest and lively!

We have carefully set the agenda for Post Seed 2016 to feature some of the most outspoken and successful founders and investors — consider Aykin Senkut, who in a decade built up his angel firm into Felicis, now on Sand Hill Road; or Chamath from Social Capital, an operator-turned-investor who isn’t afraid to challenge local, conventional wisdom; and a special fireside chat with the founder and CEO of this year’s hottest tech IPO, Twilio, Jeff Lawson. On top of this, we have a great list of founder panelists, as well as VC panels with GP representation from firms such as Sequoia, Greylock, Accel, Thrive, and many more.

You won’t want to miss it. Paul and I respect your time, and the entire day’s agenda and participants reflect that commitment. We hope to see you there. (I have some passes set aside for post-seed founders as well as non-GP investors who’d like to attend. Ping me and tell me why you’d like to go. Will do my best to accommodate.)

Throttling

One of many reason LPs (rightfully) prefer to invest in new firms with “spinouts” (investors who have already been inside a VC firm) is because there is no Khan Academy online course for Fund Management. I am lucky because I have been at least exposed to how a handful of firms operate, but it still remains an elusive topic. The most recent fund management technique I’ve been learning about and applying to Haystack is “throttling” the flow of capital. We are talking small dollars here, but the mechanics matter — I wanted to look up the definition for myself — a “throttle” is a device which controls the flow of fuel to an engine, and “throttling” is the act of controlling said engine.

One of the most outspoken LPs, Chris Douvos, wrote last year, from the perspective of an LP, about how investing continuously in VC funds without seeing cash distributions affects the overall flow of capital. The logic is straightforward: If LPs don’t at some point get cash back, they may be reluctant to or simply physically unable to keep investing in those VC funds, which then of course could impact current portfolio companies and most certainly would affect the next crop of founders pitching those firms. Douvos writes, “So, entrepreneurs with visions of staying private forever: for the good of the ecosystem, let’s take a laxative and loosen that exit sphincter; let’s put the moolah in da coolah so that it can be recycled back into the startup world. Don’t just do it for us, the LPs, do it for your next company. Your future self is counting on you.”

The same principle may loosely apply to the gap between Seed and Series A that I wrote about a few days ago (see here). Please note this doesn’t necessarily apply across the entire seed stage, as it is very fund-dependent. I can only speak for myself here. When I began investing in 2013, it seemed like after every check I wrote, within 9-18 months, I’d get a phone call which said “Hey, good news! So-and-so VC firm is leading a round in Company X.” As 2016 nears a close, those phone calls are fewer and far in between. Now, that could be because my own selection hasn’t been as precise, or because I invested a smidge too early on the risk curve, or because the cost of capital and/or local inflation impacts how far a local dollar can stretch, or because it will take at least 2-3 years for seeds to mature to be ready for an A (I’m only 16 months into Fund III). We don’t know yet.

As a I result, my instinct has been to throttle a bit. Not a ton, but just a bit. In the same way an LP may be more cautious if the flow of fuel to the engine is interrupted, a seed investor may feel the same if the rate of portfolio companies which graduate to Series A slows down. That means more seed extensions, perhaps, or more explorations for alternative financings (more on this in another post), looking for exits (or something less savory), or just more time to get to the truth. We will see. While I can only speak for myself, I have to imagine other funds which participate in the earliest seed rounds with a higher throughput of investments may feel something similar. If it is a more widespread feeling, that may mean a slowing of the rounds a bit, which is overall a healthy thing.

A Local Fragmentation Tax: Labor, Capital, and Attention

As I’ve been musing about on Twitter, oftentimes in the current Bay Area ecosystem, I don’t understand how very early-stage companies recruit teams to join them because there are so many opportunities (which is great) and so much capital in the ecosystem. At the seed-stage, when investing in a small team, oftentimes those founders turn into near-full-time recruiters. Even when a startup approaches product-market fit or even scores a larger Series A investment (and therefore, more cash, runway, and security), teams struggle to fill their open roles because talent is so fragmented.

But it’s not only human capital which is fragmented — financial capital is also fragmented. One way to sum up the current environment? Mass Fragmentation. We are currently in a state where both human and talent capital is hyper-fragmented.

My bias is that, overall, I think it is bad for innovation. That said, there are some strong arguments as to why it may be a net-positive. For instance, on the human capital side, having more money in the ecosystem empowers more people to start companies, to own their equity, to embark on new experiments; it also encourages new capital bases to invest in the ecosystem, to invest so early as to invest in teams and people who are already known to them. There are valid arguments to “let a thousand flowers bloom” and the participants (and maybe society, at-large) could benefit from.

I am in the camp that this Mass Fragmentation is a net-negative.

Let’s start on the financial capital side. We’ve all seen the tweets and articles about the continued explosion in microVC funds, vehicles which are less than $100M. More and more people are starting funds and acting as access points to help a wider base of LPs sell money to entrepreneurs. As a result, there are more companies forming, which means the “hot team” that could’ve formed five years ago with a core of 8-10 people may now result in three separate startups forming with $2M in seed funding each. At the same time, as many of the traditional VC funds have grown in fund size, they largely haven’t been able to recruit the types of folks they want or need because the best investing talent either has the option to create their own fund (and this is continuing) or work as an executive in a high-growth company and make a ton of money.

On the human capital side,  startup culture is fully mainstream — social cues from The Social Network, Shark Tank, and others encourage everyone to start companies and to be an owner. And there’s plenty of capital to supply them with oxygen, as we see on TV and Twitter each day. Yet, many startups cite “recruiting” as their #1, #2, and #3 core challenge. The traditional VC funds (and even some of the newer ones) have recruited their own “Recruiting Partner” or talent head to help with this function, an arms race where all of them are likely fighting for the same pool of talent.

All of this would be somewhat OK, but location matters, too. While the Bay Area is an incredibly dynamic place, the cost of living here, the cost of mobility here, and the cost of attention puts new pressures on the forces above. When large tech companies and the big growing startups can offer enough compensation and $1M RSU grants at hiring, many folks may opt for this path in order to cover their rent, mortgage, and childcare, among other expenses. To compete, growing startups have to pay salaries which somewhat compete with incumbents. We’ve all by now read about the housing crisis in the region. It’s also difficult to physically move around in the Valley, with more people moving here, more cars on the road, no real increases in public transport capacity, congestion, rubber-necking, and transit choke points are starting to look and feel like LA sprawl on Google Maps.

And finally, there is the cost of fragmented attention. The “salon culture” of conferences, events, private dinners, happy hours, and coordinated social media campaigns is all with good intentions, but we may be at the point where the increase in the number of new companies with cash to spend and new investment vehicles eager to brand themselves for deal flow. To be clear, the intentions here are mostly pure, but in aggregate, it presents the ecosystem with an “Attention Tax.”

And, when this tax  is combined with fragmented financial capital and fragmented human capital, it creates more noise and makes it harder to find the signal. Consider startups working on the blockchain, for instance — while many have been seeded in the local ecosystem, on a global level the communities of developers working on the most interesting projects are more likely to reside in places like New York City, China, and Europe. Or, consider that some of the best VC firms in the world have quietly amassed portfolios with a concentration in non-Silicon Valley companies, choosing instead to hunt for deals in the corners of Europe, China, or across America, where the entry price makes more sense for VC-style returns. These founders and investors face other challenges by not being in the Bay Area right now, but they also enjoy some timely advantages in this time of Mass Fragmentation.

The Story Behind My Investment In Joymode

On occasion, I have had the good fortune of purely investing in a person, usually someone I know well, usually someone I call a friend. I have happily done this with companies like Trusted and EaseCentral. And, I did the same thing with Joe Fernandez and his new company out of Los Angeles, Joymode.

I first got to meet Joe because I wrote about how his previous (controversial) startup, Klout, was actually on to something counterintuitive. Klout was controversial for many reasons, the biggest being that its seemingly arbitrary ranking of social profiles seemed to fly in the face of the democratizing force of social media. It went so far to the point where influential Tech Twitterati would publicly tweet their distaste for the service, even though Joe and his team (run by friends like Don, Matt, and others) attracted institutional investment from some of the best firms on Sand Hill.

I never understood why people hated on Klout so much, so as I was writing about it (see here), it gave Joe and I excuse to meet, hang out, and over the years, become friends. Fast forward a few years, was hanging out with Joe and he informed me that he was packing his bags, headed down south, leaving the Valley behind. He was about to become a dad, and he wanted a change of scenery. Knowing Joe, i can’t blame him. As he was leaving, he was thinking about a new company (originally called “Funship”!) with his cofounder, so I immediately made sure I was meeting him a lot and part of those chats. I was personally bummed that Joe would be leaving town, but also excited about the prospect of getting to invest in Joe.

In the summer of 2014, I wrote a check into Funship and shared the opportunity with a few friends who grew equally as excited as me. For the past two years, Joe and his team have quietly been building Joymode, building the consumer app experience, getting the operations right, and testing a new consumer concept in downtown Los Angeles, a world away from San Francisco’s saturated consumer culture. It’s early days, but I never worry about Joe’s drive.

You can read more about Joymode elsewhere. Here, on this blog, the story is really about what kind of person and entrepreneur Joe is. Joe is someone who just does things without wasting time. When he needs to find a technical solution, he knows how to gather expertise or build a team to address it; or, when he needs to get something elusive, he knows how to cut corners and cut deals. He doesn’t ask for too much advice, instead relying on his entrepreneurial instincts, which I believe are sewn into his DNA and upbringing in Las Vegas. It’s worth noting that Joe and the Klout team drove that company to quite a meaningful exit to Lithium, an exit in today’s environment people would kill for — including many of those in the chorus who didn’t care for Klout and found it gauche.

But, Joe loves the haters. It fuels him. And that kind of fuel makes an investment a no-brainer decision.

Make Series A’s Great Again

Over the past few weeks, I’ve caught up with and hung out with some of the larger investors on Sand Hill and beyond. At the same time, I am helping lots of seeded companies begin to think about and/or prepare for their Series A. As every seed investor and firm touts their “value add” as being a bridge from seed-to-Series A, the realities of that pitch are now being tested — the bridge is longer than one imagined. Many of the large VCs I’ve talked to have remarked that not only has their own investment pace slowed down (and not just in 2016, but even back into 2015), that this is true within their funds at large. Yes, Series As are happening, but the shape of them has been contorted — smaller (or healthier) check sizes, more ownership for the VCs (and more risk), and fewer and fewer deals coming by with fundamental momentum.

I don’t mean to write this in a negative light, as I think it’s healthy. It’s just where we are now. I know that everyone will say they’re still active and willing to invest, and that is true, but based on what I’m hearing from founders on the street and what the deal pace is for larger checks, the market seems to be waiting. I’ve been thinking about why we are here and how it happened. My list so far:

1/ Valuation compression from over-valued Series Bs: Many good companies raised at valuations that were too big. They’re now coming back to market and new investors don’t want to be the bad cops and suggest recapping the company. That realization of overfunding at B has trickled into the Series A consciousness and slowed the pace down.

2/ At the same time valuations at Series A have come down (with less momentum), many of the larger funds on Sand Hill have gotten much bigger in the last year. As the funds hold more money under management, but the check sizes they can justify for smaller As are smaller, some funds have decided to wait, to elongate their investment period, and make sure to deploy capital at the optimal point on the risk-reward curve.

3/ The excesses of capital in the seed market and plethora of companies makes it easier for new companies to be started, but also harder for talent pools to form around an early company. Talent is incredibly fragmented. Everybody wants to be an owner. A hot team of 5-10 core builders who could’ve formed a strong unit 5-7 years ago could today spawn three (3) new startups inside, each of them fighting to recruit the same talent from a dwindling pool.

4/ At the same time, many seed investors, most of whom are newer, younger, and less experienced in fund management (including yours truly) spent most of 2014-15 seeding companies with other peoples’ money earlier in the company lifecycle, at the point where traditionally friends and family or even founders would be putting in most of the cash. Now, many of these companies need extensions or bridges or prime rounds or second seeds, or whatever you want to call them.

5/ The end markets seemed to be tightening up, too. Yes, yes, I know, something will breakout and we will all be surprised, but if you think about what share of the consumer wallet is left to grab or if you consider how every enterprise application or infrastructure product takes on a SaaS model, every single SaaS startup is fighting with each other to get a share of budget using the same business model. (SaaS overload is so real that I just funded a startup whose mission is to help CFOs at large enterprise companies identify and manage their various SaaS subscriptions.) This may be why folks have gravitated to the frontier stocks, investing in new emergent technologies and spaces.

Again, to repeat, this isn’t a negative post — I think it’s all moving in a positive direction. It’s taking a while for the tide to go out, and new things will emerge that will surprise us. But for fund managers who have seeded companies, the reality of the gap between seed and Series A is beginning to look like a canyon, and it will take more time, money, and grit to get to the other side — some of those teams will score their Series A, but that checkpoint isn’t the end all, be all — some will also begin to partner earlier with larger companies in their industries and/or even be acquired. It will be interesting to see which teams and investors hold the right map to traverse the course.

Quick Thoughts On Mixing Up The Demo Day Model

The “seed accelerator” model for early-stage investing can and does work well for those running and participating in an accelerator. Yet, the format can frustrate investors who attend. While they are good social events for investors to show up to, the information-overload and herd behavior can make it easier for many investors to just “sit this one out.” In the last few months, friends have invited me to their demo days, their online demo days, their mentor sessions, etc. and I’ve politely declined because I can’t handle the information-overload. I’ve had this conversation with many investors over the years, and thought I’d try an exercise of listing some ideas that could potentially work. I’m writing this so others can either offer other ideas or explain why these ideas below wouldn’t be useful.

As a disclaimer, I’m not suggesting that investors need to be catered to — but rather, these are ideas for the accelerators to help their companies get funded faster and for higher amounts over time. Thanks in advance for your point of view…

1/ Publish and distribute lists with standardized information: It would be helpful to have a list or website of every company in a batch with standardized information about the startup, including founder profiles (and social links), existing financing history (AngelList profile?), and other relevant information.

2/ Publish and distribute 1-page recommendations for the team: When someone from an accelerator asks me to check out a certain company, I’d love to know why? The people running these programs are smart and have seen many teams — what’s different or impressive about the current team in question? Why do you like the solution? I know it’s hard to play favorites but I wonder if this approach might lead to tighter ties with downstream investors and also more funding likelihood. (Speaking of which, publishing batch number and funding histories by batch historically would help investors assess any variance.)

3/ Make applications and reviews public (where appropriate): Without disclosing sensitive information, could parts of a company’s information be made as part of the info packet of a company or shared during demo day time? That may already contain the standardized info I’m talking about above.

4/ Try new things: The format of trying to get investors to physically show up to a demo day can be hard for some accelerators. The Bay Area is hard to cover, lots of traffic, lots of competing events — why not mix it up? Maybe get a bus and go to Sand Hill or South Park? Or, why not team up with other accelerators to increase the volume for a half-day or day-long event? Or, why not just put a longer pitch and founder interview on YouTube and keep it open?

5/ Other ideas from you?

The Mood Among GPs and LPs (Fall 2016 Version)

This past week was a busy week for LPs (those who invest in VC funds) and GPs (those who deploy said funds) to meet and mingle in the Bay Area with a few big events going on. I like to write about what I learn from the LP side because I have found most founders don’t know what LPs think, and I find it useful myself as I’m learning to invest on my own. I couldn’t capture everything from the week, but I wanted to write down what struck me most. While Monday through Thursday were intense and packed with meetings all over the Bay, I finally had a chance to reflect on all those coffees, panels, fireside chats, and hallway conversations across the annual meetings, conferences, and summits I attended this week. (A special thanks to friends Michael and Graham from Cendana, friends at Silicon Valley Bank, and Alastair Goldfisher for inviting me to participate. The notes below are culled from conversations from the events, but I don’t want to attribute them to anyone specific as it should be the ideas that permeate in this case — not “who” shared them.)

From the GP Perspective:

1/ More Funding Checkpoints: It used to be founders would raise first from friends & family and then seed investors, and then finally the institutions who would do a Series A on the smaller side. Now founders have pre-seed, then seed, then an extension, finally get to A, but then maybe A-prime or A-1. This could be construed as more capital efficiency (deploying cash at the right points on the risk curve and empowering founders to minimize dilution impact) or entirely inefficient (spending lots of time being evaluated and having notes stack too high against founders at conversion). I tend to err on the side of viewing this as inefficient, but perhaps this is the uncertainty we all have to navigate through given the explosion in new company formation and era of cheap money.

2/ Syndicate Risk: Many seed GPs talked about how the explosion of smaller firms and more names on the cap tables can cause myriad problems, especially for seed leads — leaking information, proliferation of bad advice, heavy pro-rata duties, misalignment of fund objectives given broadening LP base, and so forth. On the other hand, at the very earliest stages of company formation, it would make sense that the risk is spread out (from a financial point of view), though from the founder point of view, what is best here? It’s an open question and I don’t know the answer (yet).

3/ Smaller or Longer: Exits are smaller than they have been versus 5-10 years ago (though some of the exits are HUGE, but concentrated across a few events), and companies are staying private longer — fewer meaningful exits cut off the oxygen for funds, naturally, as most companies never get to IPO; longer holding periods for private stocks mean LPs and the GPs have to hold and work longer to see liquidity, and this can impact the pace of an investor, and indirectly slow down investors from investing if they haven’t seen liquidity to show back to LPs who could keep reinvesting. (Most are hoping some of their companies get scooped up in M&A if a wave of consolidation should be so lucky to appear.)

From the LP Perspective:

1/ Getting Out: I have been to many of these events now over the last two years in an effort to learn. Never before had I heard the LPs across the board talking about exits — finding managers who know “how to get out,” creating stronger incentives for managers to find exits. As noted earlier on previous posts, managers are often not in control of when liquidity can arrive, and in larger outcome cases, investors without enough control can actually see liquidity slip away because the company owners do not want to sell. (I posed this conundrum to an LP who used to be a VC, and he remarked that his technique to control for this was to invest in firms where the GPs often coinvest together as a means of grabbing control back at the board level around such decisions.)

2/ Chasing Alpha and Avoiding Risk: One LP remarked to me that he gets his “3x” from growth funds, where GPs are making fewer, more targeted bets, looking at tons of data. Therefore, in early-stage, he needs to see 5x, but most funds are just gunning for 3x. Here, they chase Alpha, but of course, so many funds are now bigger, and it’s easier for LPs (especially the larger ones) to park large amounts of money with experienced managers (one reason why spinouts are coveted) who won’t lose the entire farm. We may see the same behavior play out across VC firms according to size, where the smaller funds are more comfortable with taking on greater risk given the return expectations versus larger funds who have really grind it out to return such high values.

3/ Incredible Shifting Sands Underneath Traditional VC: With more funding “checkpoints,” the number of startups and VC firms continuing to increase, the returns coming in (but concentrated), and people slowly leaving traditional VC, LPs see tons of opportunities to find and partner with smaller or newer firms and find new ones that can scale and perhaps not get too big. We now see dozens of firms which started as smaller seed firms now managing well over $100M in a fund and taking on the new Series A; now seed firms are looking for traction and data to analyze; now pre-seed is actually a category that institutional LPs have added to their lexicon; and, perhaps most important, the next crop of founders aren’t as swayed or in awe of the larger institutional VC brands that many LPs have admired for years. And, new LPs are in the mix too — it is not clear which models and vehicles and managers will build the best flytraps to catch the next big outcomes. It’s all up for grabs.

Venturing Along With GGV Capital

As many of you know, I have been a venture partner to GGV Capital. Today, GGV Capital announced me, along with another Venture Partner (Denise Peng, formerly of Qunar) and a new EIR (and and my old friend), Jason Costa. More precisely, I have been a Venture Partner with the firm for about a year now, after years of being a consultant to the firm (as well as other firms in the past). For someone like me who is just starting out in their investing career, a dream opportunity.

Yes, I know — it is an unusual, unconventional split-role and association for someone to have, but when I look back on my work history and timeline, my career has simply never fit neatly into a LinkedIn profile. After years of struggling to find a way to cut into the investing industry, I had the fortune of choice last summer. While still raising and deploying Haystack, the early-stage VC fund I started and currently invest out of, the six managing directors of GGV — all whom I’ve known for years — were creative in finding a way for me to join them on certain key projects while supporting me in my own efforts to build up the Haystack franchise.

GGV has been, from its first day almost 20 years ago, a differentiated venture fund. The firm was founded on the thesis that the interconnectedness of the world’s two largest economies — the U.S. and China — would increase over time. Throughout its history, the GGV Capital team has been fortunate to be associated with some of the most iconic global companies and operated seamlessly, at scale, across the Pacific Ocean.

It’s worth noting GGV and Haystack operate at slightly different scales ;-)

Haystack is roughly $10M in the current fund, Fund III (and is only 40% invested). GGV just raised its sixth fund at $1.2B. As part of this special opportunity, I spend my Mondays at GGV and participate in a variety of the firm’s internal meetings. As someone who hopes to create a franchise fund, I am fortunate to have a front-row seat to learn how a large, global venture capital firm operates at scale, makes decisions, builds relationships with limited partners, and works directly with founders and entrepreneurial executives at startups.

This is all the professional stuff.

On an individual level, like many other VCs in the ecosystem who have helped me and individually been an early backer of Haystack, all of the six MDs of GGV have all been personal investors in each Haystack fund. They have even gone so far as introducing me to some of their LPs so I can build relationships with them over the long term — a very generous gesture. When GGV debates a large investment, the MDs will sometimes seek my counsel, and it feels great that they would care to ask my opinion. On the flip side, when I am stewing over a small investment in a very early-stage startup as a single-GP fund, I can always call or email one of them and have them spar with me about why I should or shouldn’t do the deal. Like with their founders, they will always make the time for me.

Almost a decade ago, I was on a path to finish graduate school and move to Asia. As part of that process, I spent many years traveling to and working in India and China on a variety of projects for the university. Ultimately, I chose to come back to the Bay Area, but those experiences in India and China still live with me vividly, and I learn so much via osmosis at GGV about how technology and consumers in Asia are building the next new things.

As we saunter into the final months of 2016, and as I set out to raise Haystack IV in 2017, I am thankful for all of the opportunity that’s laid out before me. As someone new to investing, there is no playbook and guidepost on how to do all of this stuff they call venture capital. Now, I get the benefit of working with two platforms and that is both exciting and liberating.

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2016 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus