Welcome to the second post in our five-part series of what makes a top venture capitalist based on insights from current and former partners at Sequoia, Benchmark, Kleiner Perkins, and a16z. 

As a reminder, we will look at the following qualities of a good VC:

1. Sourcing

2. Picking

3. Winning the deal / being a good partner / adding value

4. Optimal Fund Size / Liquidity Strategies (when to sell)

Today we will be looking at the traits venture capitalists need to have to be savvy pickers of the many companies they see. This is part two of the series. If you’re joining us for the first time, I suggest you check out part 1 on sourcing first.

Many venture capitalists are initially screened on how many deals they see (sourcing). It’s the first test of good VC that shows you are curious, have hustle, and a strong network. Perhaps the hardest part, however, and what separates the good VCs from the great ones, is our topic for today: Picking.

In this section, I’m going to talk about the qualities top venture capitalists have when determining which company to invest in. After all, top VC firms like Sequoia, Benchmark, Kleiner Perkins, and a16z see hundreds to thousands of companies a year and invest in maybe ten. It’s an extremely selective process that judges VCs on which deals they saw and invested in, which deals they saw and passed on, and how many companies within each bucket succeeded.

The last thing a VC wants is to add a billion-dollar company to their anti-portfolio as one they saw but passed on. Those are the worst metrics. 

The best metrics are IRR and Fund Multiple, which are directly correlated to how many companies you invested in that became valuable. 

Today, we will discuss how to be a better picker by:

1. Avoiding FOMO but not Bargain Hunting

2. Having an Open Mind and a Prepared Mind

3. Having Confidence

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about what makes a top VC with quotes from firms like Sequoia, Benchmark, Kleiner Perkins, a16z, Initialized Capital, and Accel, head to allthingsvc.blog.

You can also follow me on X @Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Welcome to this new five-part series on the qualities of a top venture capitalist based on insights from current and former partners at Sequoia, Benchmark, Kleiner Perkins, and a16z. 

I will publish blog posts and podcast episodes once or twice a week, split into four parts, with one unique bonus essay I’ll reveal later. We will look at the following qualities of a good VC:

This will be a must-read for anyone interested in

So, let’s get into part one: Sourcing. 

Sourcing is the oxygen that gives life to a venture capital fund. Without it, the fund cannot exist.

For those who don’t know, sourcing is the act of finding entrepreneurs to meet with to consider investing in. It can come via inbound, as in the entrepreneur reaching out to the venture capitalist due to his or her reputation, network, or content he or she published, or it can come via outbound, as in the venture capitalists reaching out to entrepreneurs to meet. 

Effective sourcing is possible if the VC is curious, has the hustle to build a network, and puts out content as a beacon for great entrepreneurs to come to them. In this episode, we’ll discuss why these three concepts are vital for a venture capitalist, backed by quotes from greats such as John Doerr, Bill Gurley, and Jeff Jordan, among others. 

Chapters:

1. Curiosity: 04:01

2. Network: 12:36

3. Produce Content: 24:10

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about what makes a top VC with quotes from firms like Sequoia, Benchmark, Kleiner Perkins, a16z, Initialized Capital, and Accel, head to allthingsvc.blog.

You can also follow me on X @Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

In this episode, I reviewed some notes that didn’t make it into last week’s Accel podcast on why they invested in Facebook, Scale AI, and Flipkart and why they passed on Cisco, Skype, and Flickr. If you want to learn more about Accel, I suggest starting there.

I used those notes to generate five questions I’d ask founders if I were a partner at Accel.

While I don’t know whether they actually ask these questions, I have many direct quotes from current and former partners about what they look for in founders and questions they ask founders when determining whether to invest in a company. Therefore, I can extrapolate some reasonable questions.

I think this will be a helpful thought exercise for founders who intend to raise to think about your answers to some of these questions as I believe they are questions an investor would ask whether Accel or not, so it’s good to think about.

For investors, it’s good to think about the questions you like to ask founders and why and read some of these quotes from Accel partners, who are certainly some of the best investors in the world, so it’s worth reading this information and maybe adding some of these questions to your list if you think they’re effective.

Chapters:

1. What's Working Now and What Are the Challenges? 2:00

2. How Do You Know This is a Problem? 8:29

3. What is Your Team Like? 15:27

4. What's Your Competition Like? 25:57

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about Initialized Capital and many other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

After discussing two venture firms, a16z and Initialized Capital, both founded in the last 15 years, we’re going way back to 1983, the founding year of Accel. 

Accel has been an early investor in massive companies like Atlassian, Slack, Etsy, Discord, and Dropbox, among others. Its portfolio also includes the three companies we’ll discuss today: Facebook, Scale AI, and Flipkart. 

Though there have been bumps in the road on their journey, as with any firm that has been around for 40 years, Accel has always been at the forefront of innovation, investing in technologies and trends before many others see it. 

Today, we’ll learn why Accel invested in Facebook as the only VC firm the founders ever considered, why Accel invested in Scale AI before the AI movement was flourishing as it is today, and despite the founding CEO being 19 years old, and lastly why Accel invested in Flipkart, an Indian e-commerce company that was operating in a minuscule technology market in 2008 when Accel invested. 

As we investigate why Accel invested in these three companies, we will analyze the firm’s general investment thesis, what they look for in founders, what traits make good VCs, and some general advice they have for founders. 

At the end, we’ll examine some billion-dollar mistakes Accel has made in their storied career, including one they won’t be too upset about for reasons you’ll see later. 

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about Initialized Capital and many other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Last week, we looked into why Initialized Capital invested in Coinbase, Instacart, and Rippling. Additionally, we explore how they won the deals, what Initialized Capital's general investment thesis is, and how you, as a founder, can position yourself to get funding from Initialized.

After reviewing many of my notes and direct quotes from current and former Initialized partners, I decided I would elaborate on five questions I'd ask founders if I were a partner at Initialized debating an investment decision.

I think this will be a helpful thought exercise for founders who intend to raise to think about your answers to some of these questions as I believe they are questions an investor would ask whether Initialized Capital or not, so It’d be good to think about.

For investors, it’s good to think about the questions you like to ask founders and why and read some of these quotes from Initialized Capital partners, who are certainly some of the best investors in the world, so it’s worth reading this information and maybe adding some of these questions to your list if you think they’re effective.

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about Initialized Capital and many other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Chapters:

1. What have you built? 01:27

2. Why has this not been built yet? 08:39

3. What is your experience in this industry? 16:46

4. How do you know this is something your customers want? 23:18

5. Why should I join your company? 33:39

It’s rare that a Venture firm invests in 27 unicorns in just 12 years of its existence. It’s even rarer that a venture firm invests in 27 unicorns all at the seed stage, even when it’s just a founder and an idea. It’s EVEN RARER that a firm turns a $7 million fund into over $2 billion in distributed capital for LPs.

Put all of those rare feats together, and you get one of the best, if not the best, early-stage VC firms: Initialized Capital. 

Since its founding, the general thesis of Initialized, as described by founding partner Garry Tan, is as follows:

“The coolest thing about initialized has always been being able to believe in Founders before it's totally obvious because that literally is what you have to do in order to create returns that nobody else can get. You have to believe in Founders maybe when they just have a demo, and they have an early idea that there's a problem that we could solve.”

That is how you can achieve billion-dollar returns on less than $7 million of invested capital – by backing founders at the earliest possible stages – the highest risk taken for the highest reward. 

In this essay, we’ll look into many principles Initialized has of backing builders, backing founders they’d want to work for, and attacking an opportunistic market with a very non-consensus idea. These theses, among others we’ll explore today, led them to invest in 27 unicorns, including Flexport, Cruise, Opendoor, and Patreon, among three other companies valued at over $7.5 billion, which we’ll discuss today. These companies are a few reasons why Initialized is regarded as one of the best pure seed-stage investors of all time and is quickly growing. 

Today, we’ll investigate why Initialized invested in Coinbase, Instacart, and Rippling. We will also dive deep into the firm’s general investment theses, what they look for in founders, what traits make good VCs, and some general advice they have for founders. At the end, rather than our traditional Anti-Portfolio format, since either Initialized has no major mistakes or just has never spoken publicly about them, we’ll explore three mistakes Garry Tan has made personally in his startup journey that include key lessons for founders from a first-hand experience. 

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about a16z, along with several other companies they invested in that we didn't discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more nuggets of information that I post throughout the week based on what I talked about in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Intro Music: High St. by Alex Dethero

Last week, we looked into why a16z invested in Instagram (Burbn), Okta, and Slack (Tiny Speck), why they passed on Uber, Square, and FTX, how they won the deals, what Kleiner Perkins' general investment thesis is, and how you, as a founder, can position yourself to get funding from a16z.

After reviewing many of my notes and direct quotes from current and former a16z partners, I decided I would elaborate on five questions I'd ask founders if I were a partner at a16z debating an investment decision.

I think this will be a helpful thought exercise for founders who intend to raise to think about your answers to some of these questions as I believe they are questions an investor would ask whether a16z or not, so It’d be good to think about.

For investors, it’s good to think about the questions you like to ask founders and why and read some of these quotes from a16z partners, who are certainly some of the best investors in the world, so it’s worth reading this information and maybe adding some of these questions to your list if you think they’re effective.

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about a16z and many other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Chapters:

1. Why are you the person to solve this problem? 02:05

2. How big can this company get? 12:40

3. How are you reducing friction for the user? 24:05

4. How are you tackling the cold start problem? 32:14

5. What's the mission? 42:58

Today, we’re analyzing a16z, the VC firm that was the face of the bull market from 2009 to 2021. A16z fully embraced this movement by raising massive funds right out of the gate (their first fund was $300 million), investing at high valuations, creating a media platform for their VC firm with the help of renowned Hollywood agent Michael Ovitz, hiring hundreds of employees to support startups with sales and hiring, compared to just five partners at rival firm Benchmark, and spearheading the movement that former founders and operators make better venture capitalists than career investors do.

It may be no surprise that many competing VC firms, then and now, share some distaste, or perhaps jealousy, for the loud and aggressive investing style of a16z. But as I’m sure partners at a16z tell their startups all of the time, to be successful, you have to differentiate. You have to take advantage of a movement and go big, and a16z certainly went big.

Sure, it’s great they differentiated and led the charge post-GFC, but were they actually successful? Well, as we’ll see today, their first fund, which included the three companies we’ll discuss in this episode, posted a 44% net IRR as of 2018, according to Pitchbook, certainly putting them as one of the best-performing large-scale VC funds of the 2010s. 

That means over an 8-10 lifespan, that fund was valued somewhere around $8-$10 billion on $300 million invested. A large chunk of that value is from winners like Stripe that haven’t actually returned capital yet, but other investments like Instagram, Okta, and Slack, which actually returned roughly $3.5 billion in capital to the firm, show that a16z can practice what they preach. 

Today, we’ll investigate why a16z invested in Instagram (Burbn), Okta, and Slack (Tiny Speck). We will also dive deep into the firm’s general investment theses, what they look for in founders, what traits they feel make the best VCs, and general advice they have for founders. At the end, we’ll look into some huge misses they had in the past in companies like Uber and Square, and also one miss that, unlike most anti-portfolio companies, deserves some praise in the company formerly known as FTX. 

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about a16z, along with several other companies they invested in that we didn't discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more nuggets of information that I post throughout the week based on what I talked about in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

After reviewing many of my notes and direct quotes from current and former Kleiner Perkins partners, I decided I would elaborate on five questions I'd ask founders if I were a partner at Kleiner Perkins debating an investment decision.

I think this will be a helpful thought exercise for founders who intend to raise to think about your answers to some of these questions as I believe they are questions an investor would ask whether Kleiner Perkins or not, so It’d be good to think about.

For investors, it’s good to think about the questions you like to ask founders and why and read some of these quotes from Kleiner Perkins partners, who are certainly some of the best investors in the world, so it’s worth reading this information and maybe adding some of these questions to your list if you think they’re effective.

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about Benchmark and 15 other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Intro music: High St. by Alex Dethero

Chapters:

1. How do your Users use the Product? 02:42

2. How will this Product Expand? 10:18

3. What are the "White-Hot" RIsks Facing your business right now? What do you need to Mitigate Them? 17:34

4. Have you ever Sold Anything Before? 24:10

5. What is the Base Case, and what is the Irrationally Optimistic Case for your Business? 31:12

A few weeks ago, we looked into why Benchmark invested in eBay, Uber, and Riot Games, how they won the deals, what Benchmark’s general investment thesis is, how you, as a founder, can position yourself to get funding from Benchmark and discuss some regrettable passes they have in their anti-portfolio.

After reviewing many of my notes and direct quotes from current and former Benchmark partners, I decided I would elaborate on five questions I'd ask founders if I were a partner at Benchmark Capital debating an investment decision.

I think this will be a helpful thought exercise for founders who intend to raise to think about your answers to some of these questions as I believe they are questions an investor would ask whether Benchmark or not, so It’d be good to think about.

For investors, it’s good to think about the questions you like to ask founders and why and read some of these quotes from Benchmark partners, who are certainly some of the best investors in the world, so it’s worth reading this information and maybe adding some of these questions to your list if you think they’re effective.

More All Things VC:

To read this podcast in an abbreviated format, check out the substack: All Things VC. It has the same content as the podcast, just a little more direct with less improv.

To read more about Benchmark and 15 other companies they invested in that we didn’t discuss, more on their general investment theses, what makes a good VC, what they look for in founders, and general advice for founders, head to allthingsvc.blog to read more.

You can also follow me on X at Justin_Pryor_ for more information I post throughout the week based on what I discussed in this episode. Likewise, you can find All Things VC on YouTube to see clips of these episodes separated by each major topic I discuss.

Intro music: High St. by Alex Dethero