Read on Twitter
1/ My old essay ‘Beware What Sounds Insightful’ ( https://commoncog.com/blog/beware-what-sounds-insightful/) has been making the rounds again lately, so I thought I’d say this:
New VCs, with not much of a track record, are the worst violators. It’s gotten to a point where my default is to mute them on Twitter.
New VCs, with not much of a track record, are the worst violators. It’s gotten to a point where my default is to mute them on Twitter.
2/ It helps to take a look at their incentives.
Our current zero interest rate environment has pushed the yield curve way out. That’s a fancy way of saying there’s a lot of capital looking for returns, in riskier asset classes than the norm.
VC is a riskier asset class.
Our current zero interest rate environment has pushed the yield curve way out. That’s a fancy way of saying there’s a lot of capital looking for returns, in riskier asset classes than the norm.
VC is a riskier asset class.
3/ This means that it is easier and easier to get capital to invest. We’ve seen an explosion of VCs in the past 5 years. Possibly an acceleration in the past 3.
Even SaaS founders are now scouts for other firms.
Even SaaS founders are now scouts for other firms.
4/ So many new investors means more competition for less deals. VC is a notoriously cut throat business — only a few players get the returns. And the returns take about 10 years to materialise.
So what do the new players do? How do they differentiate?
The answer: they tweet.
So what do the new players do? How do they differentiate?
The answer: they tweet.
5/ I’ve lost count of the number of times I’ve read a piece or Twitter thread talking about a new ‘trend’ in consumer or enterprise, only to find out that it was written by a new VC, in order to stake out some thought leadership for themselves.
Makes sense: how else to compete?
Makes sense: how else to compete?
6/ Such pieces are usually written to sound insightful. But scratch the surface and you’ll find all sorts of shoddy thinking. Most times, the trend doesn’t materialise.
No. Such pieces are written to try and grab deal flow, to establish personal brand. Truth is not a factor.
No. Such pieces are written to try and grab deal flow, to establish personal brand. Truth is not a factor.
7/ So I do a quick test now: if I see a good piece of writing by a VC, I don’t even bother checking the logic first. I check to see if the VC has a track record. And by track record I mean IRR, or exits, and preferably more than one.
Otherwise, I mute.
Otherwise, I mute.
8/ Today, the ability to raise capital for a fund is not a signal of competence.
There are smart VCs out there. But they tend to be the ones that survive the industry’s brutal characteristics. Read them instead.
There are smart VCs out there. But they tend to be the ones that survive the industry’s brutal characteristics. Read them instead.
9/ Or, more accurately, if you want to spend time critically evaluating a piece of writing, do it on VCs who have cut their teeth in the hard times.
VC is a cyclical business. We should see many of the current thought leaders jettison out in a few years.
VC is a cyclical business. We should see many of the current thought leaders jettison out in a few years.
10/ The ones that survive would be worth reading.
Till then, be judicious with your time: if you choose to read a piece by a VC with < n years of experience, know that the signal to noise ratio turns bad the closer n approaches 1.
Till then, be judicious with your time: if you choose to read a piece by a VC with < n years of experience, know that the signal to noise ratio turns bad the closer n approaches 1.
