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  • Writer's pictureYannick Oswald

What you have to believe in...

Updated: May 28

Two weeks ago, I spent two days with 100 European investors. In one of the chats, the term imposter syndrome came up several times, specifically around investment decisions. ‘Deciding whether or not to invest represents the highest leverage point of venture capital.’ And with each decision, you start an entirely new adventure. It is one of the things I dislike but also love so much about the venture world: You start over and over again, leveraging previous experiences.

One principle that has always resonated with me, which may sound trivial at first, is that you can’t drive mid to long-term returns by doing the same thing everyone else is doing. So, the ‘imposter’ question is really about how to stick to your guns when nobody else believes in the idea.

This industry is noisy, and it is easy to get caught up in the short-term momentum play. But investors are paid to build conviction on long-term contrarian bets. By definition, this means that few people get a great idea at the start. To not go nuts, you need to be clear about your beliefs.

The two great dichotomies of venture capital.

Two of the great dichotomies of venture capital are:

(1) You have to take substantial risk, otherwise you won’t drive great returns. In particular, being disciplined and doing this exercise over and over again goes entirely against human intuition. The risk of falling into the trap of going after ‘safer bets’ is just so tempting. Driving great early-stage venture returns is about consistently making those controversial bets under the umbrella of a disciplined strategy.

(2) In the early days of most great investments, you'll find yourself standing pretty much alone, with very few others willing to invest alongside you. And often, the reasons are perfectly justifiable. People might even call the idea crazy. But conventional wisdom is usually wrong in the long term... This scarcity of believers is a temporary phase, usually lasting a few quarters until the vision becomes clearer.

To connect the dots, people need to have a deep and rational conviction on a founder's thesis, often based on earlier market research or past experiences with similar business models. One common but bad reason for passing on an idea is ‘too many other early-stage startups raised capital in the space’. Even if well-funded, small competitors never impact the trajectory of a great company with a superior team, product, and/or strategy and vision.

This lack of interest from peers in the early days is one of the common characteristics of the majority of our home-run investments. Talking to friends in the industry, they have a similar experience. One could go as far as arguing that if an investment easily attracts a lot of capital very early on from investors, this is a bad sign—it is just too obvious to be exceptional...

To all the entrepreneurs out there who struggle with fundraising early on but can find a few solid, smart backers: don’t worry too much; you might just be working on something that is really worth it…

What you have to believe in.

For any bold idea to become a success, you need to believe in a few critical things. I like this quote from Peter: ‘The best entrepreneurs know this: every great business is built around a secret hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.’ Indeed, no one can predict the future exactly, but we know two things: it will be different and must be rooted in today’s world. Identifying potential vertical progress and avoiding horizontal ideas is what our job is all about.

Whenever you make a bold move, you need to be intentional about what must be true for it to work out. This is one of the questions I ask myself when evaluating early-stage startups. I am talking about the proof points for a specific bold idea, on top of what should be true for any startup. I usually have a lengthy conversation with the founders to ensure we have clarity and are aligned.

It helps both the founder and investor understand the outcomes they are underwriting and what the team should focus on

1. Determine what key things must be valid for your business to become big.

2. Create goals and assign metrics to them.

3. Drop anything that doesn’t help you get closer to hitting those goals.

Let’s walk through a few examples for the first point:

1. AI can do a better job than GPs in diagnosing and treating many healthcare conditions

2. Healthcare providers will need to adopt technology to deal with the shortage of healthcare professionals and exploding national healthcare budgets

3. Patients are eager to use technology to replace in-person doctor visits

1. People are ready to rent their private homes to strangers

2. People will often prefer this option over hotels

3. National regulations will allow this to happen despite the pushback from hotel lobbies

1. Enough people are ready to use their own car to drive passenger

2. Customers will pay enough money to give drivers a livable wage

3. Cities will allow you to operate the service despite taxi lobbies

1. Women are ready to use a privacy-sensitive tech product to manage their health better

2. People are ready to subscribe to get access to personalized, medically credible health information

3. Healthcare experts need to adopt technology to provide better healthcare support

Your style.

Whenever I back a new business, I focus on the few critical things I must believe will be true. If you have conviction around those, the investment decision is clear, even if things don’t turn out as planned. There will be no regrets. It makes every decision, no matter how bold, rational.

Two weeks ago, I spent a few days with the family in Porto and caught up with some local entrepreneurs. I love the Atlantic coast, especially the Portuguese one - it just breathes history all along…

Life is awesome


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