David Weisburd here – serial entrepreneur, Co-Head of venture capital at 10X Capital, and the newest member of the Angels & Entrepreneurs advisory board.
I’ve been an angel investor for 12 years, a venture capitalist for five, and I have reviewed more than 2,000 startups throughout my career. (For the record, I’ve only invested in less than 2.5%, giving me a rejection rate twice as high as Harvard’s….)
Through all those years and all of those deals, I’ve learned a multitude of lessons – many of which we’ll be talking about in the next few days and weeks.
But today, I want to cover the single most important lesson – the one that I would go back in time and tell my 22-year-old self when I first started investing.
In fact, If I had known this piece of information back in 2008, I would have avoided many restless nights and missed opportunities.
By sharing it here with you today, my goal is to make sure that you do not miss any opportunities, either. And not missing out on a single great opportunity is the key to finding the next Facebook or Google.
Let’s get started.
The Single Best Angel Investing Lesson I’ve Ever Learned
For the first five years of my investment career (2008-2013), I was quite angry. I saw competing investors – people I was up against — cutting a lot of corners.
My competitors were over-promising (and under-delivering) on value-add to entrepreneurs. At the time, I cursed my upbringing and the values that made it impossible for me to both lie and sleep at night.
Many investors around me were dishonest and promised entrepreneurs a bill of goods. That’s just not me and I couldn’t compromise on my values.
I wholeheartedly believed that my upbringing would make it impossible to succeed as an investor.
And then, almost overnight, something changed – I started to get into the very top opportunities in Silicon Valley.
I very quickly started to learn that those other angels – my competitors – were winning in the short term… and the short term only.
These investors were closing deals left and right, negotiating unfair deal terms in their favor, and taking advantage of inexperienced entrepreneurs.
It paid off at first, for sure. But flash forward 10 years, and these guys (and girls) are no longer around.
I, on the other hand, have established deep and valuable roots in the VC community.
And I attribute all of this to what I call the “long game of venture capital”.
The long game of venture capital is an art form practiced by some of the most prolific investors in the world… It amounts to acting in a way that is accretive to the entrepreneurs and ecosystem in which you invest and operate.
To put it simply, if you want to develop as a key player in the VC or angel investing community, you have to keep that community’s health on the top of your priority list.
This means giving at the margins today in order to get access to the best opportunities tomorrow.
Sounds simple enough, but it’s not always easy.
The reason the long game is so difficult is because you are only tested on its tenets when there are inherent tradeoffs present.
In other words, in order to be “long term greedy” you must avoid being “short term greedy.” In order to get the potential $1MM in 10 years, you must avoid the guaranteed $10,000 today, which just happens to go against our very evolutionary wiring as human beings.
Let me give you an example…
The Importance of Always Maintaining a Long-Term View
It is well known that the best startup opportunities are highly oversubscribed.
Let’s imagine that an entrepreneur has given you a $250,000 allocation into a very hot round of financing. After contractually obligating themselves to your investment, a really great investor comes along that could change the trajectory of the company overnight.
The entrepreneur really wants to take advantage of what this other key investor has to offer. In order to take advantage of the opportunity, the entrepreneur might ask you to give up a portion of your allocation in order to make room.
At first glance, it sounds like a loss for you.
But many times over, in these situations, I have given up a small portion of my allocation with an eye towards the long game. This practice didn’t always pay off, but it when it has, it has paid off 100X in additional allocation in future rounds, glowing references, and introductions to many future investments.
In fact, this strategy of giving to entrepreneurs at the margins has had such a compounding effect, that at this point, over 90% of my deal flow comes from my existing portfolio and co-investors.
Ultimately, as an angel investor, it is not just possible to do good and receive good returns, but it is a prerequisite.
As we work more closely together in the future, I’ll be able to introduce you to some entrepreneurs with whom I’ve developed those deep roots, all thanks to keeping an eye on the long-term horizon.
My goal is that you’ll get to work with them, too – more on that later!
In the meantime, make sure to follow me on Twitter at @dweisburd and feel free to connect with me there if you’d like
Until we connect next!
12 responses to “90% of My Deal Flow Is a Result of This VC Lesson”
June 09 2020