Conviction Driven Investing
Updated: Nov 9, 2020
Last week I participated in an interesting Twitter thread with some folks in the Parisian VC ecosystem. The discussion is about 'what investors are looking for in early-stage startups.'
There is one comment, in particular, I would like to highlight: 'Some deals just suit some investors better than others.' I think this is especially true at the very early stages of startups.
In my firm, we are generalists looking for exceptional entrepreneurs with unique insights. But we are also a team. And the beauty of a team is that everyone has his areas of expertise. This allows us to be experts across the spectrum of internet companies. It is precisely this setting that drove the investments in our biggest successes, from consumer to enterprise plays.
We are also early-stage investors. We back companies at the pre-seed/pre-product, seed, and series A stages. I think it is pretty unique that a venture firm of our size gets in so early. And the reason we can do so is our 'low volume, high conviction, high support approach'. I am convinced that this approach has many advantages for our entrepreneurs, and leads to better investment outcomes for everyone.
But, why do some deals just suit some investors better than others at the very early stage? The answer is conviction.
To make sure you can spot outliers before anyone else does, you need to have the right mindset to understand what they are doing the moment you meet the founders. When we invest, the entrepreneur(s) often only has an idea or a very early product with a bunch of engaged users. You really only can answer the question 'what could happen if this works out' when you know what you are looking for... Only then can you have the conviction to pull the trigger on an investment at such an early stage.
This is why we complement our generalist approach with a theme-driven approach. We update and refine these themes every year. Here some of our current core themes, and some of the pre- and seed investments we did in them. In many cases, these companies did not even have a product on the market when we invested.
So, when an opportunity shows up that is right down the middle of our areas of conviction, we are ready to jump on it very quickly. But, while the investment will be done in a short amount of time, the time to build this kind of conviction takes months and sometimes years...
It is this prepared mindset that allows you to apply discipline as well. Discipline is about sticking to what you know and what you believe in. Conviction will help you decide when to double down or not, for example. This is all the more true as some of the most contrarian investments often have a tough time raising follow-on funding in the early days.
We have strong opinions, and we are public about them. We regularly publish reports about our areas of conviction on our website, and this blog. See here our latest report we published last week 'Covid-19: The Spark for Change in Healthcare'. Check it out!
In this special year, I decided to use some of the apples we harvested to make juice, and hand it out as a present. The result is 150 liters of freshly pressed juice. I can't wait to make some people smile this week!
Life is awesome,
Other content I have found useful
- Some time ago, I wrote a post with the title 'Timing is everything. Don't go out fundraising before you've read this'. I think it is worth sharing again in the context of the discussion above.
- Here an excellent resource on Silvertech, one of our areas of conviction, by the World Economic Forum. Many founders have reached out to me in recent months to discuss this topic and this is a great resource for everyone looking to dig deeper on this topic.
- Here another interesting Twitter discussion on 'early liquidity vs holding on to an investment' between some VCs. I think it is crucial for founders to understand where investors stand on this topic before taking their money.
- Excellent post by Pete for busy founders on managing schedules: 'The Psychology of Focus: How Great Teams Find Traction Amid Distraction'. Lots of cool insights here.
- MIT researchers have built a neural net to gauge whether a person has covid-19 just from the sound of their cough. It’s been ridiculously accurate in early tests. More here.