take that shouldn't be that spicy: VCs are and that's perfectly rational (for now). Most VCs don't typically compete on their ability to pick (even though they think they might) This is not a sign of incompetence (even though it might feel that way sometimes). Here's why

First, let's talk about why this is obvious. Highly competitive rounds and the feast or famine phenomenon are both symptomatic of a market where picking investments is not how players differentiate. We can see this pattern pretty clearly in the common VC tropes.

"Who else is in the round", "let me know when you've found a lead", and "this is too early for us" are all symptoms of an underlying cause. The fact that the assertion "VCs are " is fairly uncontroversial just drives my point home.

So why is this true? (especially in contrast with public markets where most players compete entirely on their ability to pick) Liquidity is one reason. Much longer feedback cycles is a second. But the biggest is that venture is an asset class where the asset has to choose you.

To compete in public markets, you have to build a better crystal ball. It's expensive, time consuming, and uncertain. Thats why there is so much investment in research, proprietary data sources, and sophisticated modeling. Fortunately, you learn much faster when you're wrong.

In contrast for venture, it's often much easier to compete on winning deals than forming a unique thesis. As a result, the thing most investors compete on is sales. Once you realize this, so much about the industry makes sense.

There are multiple viable strategies here. You can compete by being good at selling. You can compete on network. You can compete on brand. You can compete on marketing (through social media perhaps ?) These are all easier to do than building a better crystal ball.

This is not to say that VCs are *bad* at picking, they're often quite good (compared to non-VCs) - that's just now how they compete with each other. This is also not universal, there *are* investors that compete on their ability to pick.

@bgurley looking to find Uber (first stopping at Cabulous and TaxiMagic in the process) is one of the clearest illustrations of that for me. In general, you see more competition on picking at the pre-seed + seed (and then again at late growth stages).

There are also other non-sales ways of competing in the market. Adding value (especially through advice, support, and network) are other common effective strategies in this market. The rise of support services (despite the debate around their value) reflects this trend.

So as a founder, what does this mean? What should you do about this? If you're a founder who's feasting, then you just need to be clear about why you're taking each investment. Know what value they bring to the table. More than anything, don't fall prey to cheap sales tactics.

If you're a founder who's in famine, don't be disheartened by the string of no's. It's not (necessarily) reflective of you, it's because the investors you're talking to aren't working that hard to figure out if it's worth investing in you.

Pay attention to the *why* of the no's to make sure you're not missing something (often your job as a founder is to figure out if you're crazy or right as quickly as possible).

Beyond that also, take the time to make sure you're talking to the right investors (currently an unfortunately painful process).

If you're struggling to find that first check, then it's possible you're not talking to the right people and you need to spend some time finding the ones that do actually compete on their ability to pick (especially for you vertical and stage).

The recently launched TechCrunch list is a great starting point, joining an insider network like @beondeck is another. There's fortunately more resources (like @TeamFundBoard) coming to make the process easier. https://techcrunch.com/2020/07/14/announcing-the-techcrunch-list/

If you're an investor, then I think you need to be really clear with yourself on how you're competing. If you're competing purely on sales, then as capital becomes increasingly commoditized you're at risk of becoming a used car salesman. The smart ones won't end up there.

Right now you can compete purely on sales because the market is inefficient driven by a large amount of information asymmetry, but that isn't going to last. Many different people are working to close the gap and as the market becomes more efficient your margins will get squeezed.

Going forward, you can either compete on being better at picking or you can double down on alternative defensible strategies like marketing, brand, post-investment value add, and proprietary networks (scout program anyone?)

Ironically, in this emerging world the traditional VC signals will become anti-signals. Two Stanford CS grads building yet another Enterprise SaaS tool are probably a bad bet right now unless you've got an edge that differentiates you from other investors.

If you're trying to break into the industry, it also means there's still space to compete by being better at picking. If you can see things a few steps before others, then you don't have to compete with anyone else to win the deal. This is an underutilized strategy IMHO.

I'm bullish on the emerging investors focused on underestimated founders of different stripes - not just race and gender but also business model, geography, and founder background.

As the market gets more efficient, I think we're going to see a rise in investors who compete more aggressively on their ability to pick and that's great. It means more + better ideas will get funded and also that tech will look less like its current broken stereotypes. /fin