TLDR: Emotional decision making and the resiliency gene. Investors need to spend more time underwriting the people.
This is one of those weeks. Feeling uninspired to write.
Yet here I am, punching the clock.
The last few posts, I’ve been sharing more deeply opinionated views on what’s possible and what should be within early stage venture.
With new readers, a personal sense of responsibility to write more of the same compounds.
And at the same time, it’s that personal sense of responsibility that I’m looking for in founders.
That intangible and often unperceivable brain function that keeps someone choosing to move forward. Some might call it a set of values. Others might call it passion.
Whatever it is, there are just certain people who approach certain things as though failure is not an option.
They either have massive egos that won’t allow them to quit, a set of values that is impossible for their moral compass to stray from, or somehow they inherited a gene of infinite resiliency.
The problem as an investor is, how do you test for it, identify it, and underwrite it?
How is resiliency really demonstrated? And even if it is, can it be transferable to anything that person does, or is it only in the vein of their passions, purposes, or on some deeper level of choice?
You would think, even if this ‘resiliency gene’ was only 1% real, that early stage investors would spend far more time with the people, underwriting their execution, than the long hours they spend on market research and underwriting the idea.
They would spend time in founders’ offices—working alongside them, determining their own culture fit within the walls of the company, seeing firsthand how founders and employees make decisions and interact.
Why is it then that so few firms do meaningful longitudinal diligence?
They will tell you they do. They will file investor updates away in their CRM’s. Their associates will take countless meetings to waste founders’ time. They will check and monitor to see if the numbers are growing… and they’ll compare it when they meet a new competitive company. But how often do they sit down with the founder and their parents for a meal? Or their significant others? How many hours do they work on the company and within the company before legally being part of the company?
Venture capital got so competitive over the past decade that “FOMO” and “YOLO” became actual business terms for how investors were operating.
And sure, humans are all emotional decision makers. Limbic brains and all. But the competition of being a venture capitalist should never outweigh the conviction you build in a founder and their team.
Maybe that emotional center of the brain is what drives our personal sense of responsibility and our resilience too, but it’s almost certainly why 38% or 2,725 VC firms became inactive last year—emotional decisions to become an investor, emotional decisions over what to invest in, and emotional decisions to back down because 2023 was hard.
I guess we will see who really has the resiliency gene.
See you Monday.