Good morning 👋
I love learning how other investors think about the world and size up opportunities, but it is incredibly hard to find quality documentation on the thoughts and procedures of many of the best investors.
We have tried to capture some of this hard-to-find information in the past, but we are always looking for more writing like this.
This piece by Brad Gillespie (GP @ IA Ventures) is great, and we’re breaking down what stands out to us in today’s piece.
Let’s get into it.
P.S. 🎧 We’re giving away a pair of Airpods Pro 2 to one lucky reader …
Whoever refers the most new subscribers this quarter (ending June 30) will win a brand new pair of Airpods on us.
Today’s highlights
How one of the top seed funds operates
Some thoughts around investing in small funds
How Insight trains its new investors
Venture dollars are consolidating back to SF
TOP
How IA invests 🔮
Brad Gillespie is the GP @ IA Ventures in NY, and he has been a seed investor in companies like Datadog, The Trade Desk, TransferWise, Flatiron Health, Komodo Health, DataRobot, DigitalOcean, and Recorded Future.
In other words, he is very good at what he does.
There is a misconception that seed investors bet on luck, but we know that the outputs of seed investments comes down to process of that investor. We love breaking down how different funds work and think behind-the-scenes, so writing like this is right up our wheelhouse.
Brad shared his process of how he invests, and it’s a goldmine of useful frameworks.
Here are the bits that stand out the most:
What he looks for in companies:
Pre-product market fit companies making the world suck less by delivering magical-seeming solutions to important and difficult problems. And appeal to a rational economic buyer.
Founders who are customer domain experts with a formidable strategic understanding of, and an ambitious non-obvious take on, a fast-growing market.
Companies benefiting from a massive fundamental trend. Ones where the market will continue to blossom over the next 10+ years.
Companies with audacious visions that can deliver an MVP and have many collisions with the market in the 12 months following our initial investment because distribution matters as much as product. Ones that can get to fast-growing, high-margin, scalable, and repeatable revenue within 18 months.
Companies that have a thesis about how they can be a 70%+ gross margin business with an accelerating advantage that enable them to capture the majority of the market and resulting economics.
How he likes to invest:
Provide enough runway. 24+ months of capital (thoughts on burn and team size at the seed stage) to build team, product, demonstrate the irrefutable product-market fit needed to raise the next round from a great investor.
Have enough conviction to do the whole round. No lead investor should make founders scavenge to fill out the round.
Value great syndicate members over ownership. The right syndicate can change the complexion of a company. Bottom line is the founder has the final say as to the right raise and right syndicate — keeping in mind it’s in both our interests to have a small focused group of truly helpful investors.
Hold an additional amount in reserve from the outset in case the company needs a bridge to demonstrate product-market fit. This falls under the responsibility of a true lead investor.
Keep it simple (e.g. post-money SAFE) and expect that the time from signed term sheet to money in the bank will be less than 2 weeks.
How he likes to work with companies:
Earn the trust of founders. Founders who believed in me enough to let me invest in their company.
Do no harm. The singular focus of a seed-stage company is finding irrefutable product-market fit. Investors can and do help, but most important is to ensure they don’t randomize founders. Founders know their business better than anyone.
Be aligned. Every round of funding is an experiment. It is important to be explicit about, constantly assess, and evolve the hypotheses that are being tested. The company and its investors must be aligned prior to an investment. I’ve found that the best way to achieve this is for the founders and investors to explicitly define and agree upon the hypotheses being tested with this round of funding (here is an example of a hypothesis document). That is not to say things won’t change, but it’s much easier when both parties are starting from a place of mutual understanding.
How he likes to communicate:
Be open. Send me anything you think is helpful or useful. When in doubt, send it. I read every email — if I have something of value to say I’ll respond, if not I won’t. The more information we share, the better we can work together.
I’ve found that the best entrepreneurs send out monthly updates.
Be candid. If I’ve done something that you want me to stop doing, keep doing, or start doing — let me know. I’d rather you be honest with me and tell me I screwed up than keep it to yourself. It makes me better and builds trust between us.
Read more:
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HEADLINES
Look, Basically All The Money in Venture is in the SF Bay Area Now (SaaStr)
How legendary venture firm Insight Partners hires—and trains—its next generation of investors to expand its $90 billion warchest (Fortune)
Volution doubles-down on booming UK fintech with new $100M fund (TechCrunch)
Why all US crossover funds are averaging just 170 VC deals a quarter (Pitchbook)
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🎧 Protect Your Focus: Set boundaries, say no to those extra commitments, put away the phone, and silence the noise
🤔 Playing Up: If you feel like the most capable person in the room, it might be time to find a new room
⏩ Agency Is Eating the World—How AI and Action-Driven Founders Are Changing Startups Forever: AI has commoditized specialized skills so now the bottleneck is no longer knowledge—the bottleneck is action
5️⃣ 5 Harsh Truths About Wealth You Don’t Want to Realize Too Late: Sahil Bloom shares his profound like lessons that will be a wake-up call for any high achiever
⏰ “How Fast You Win” vs “How Much You Win”: Josh Kopelman of First Round breaks down the math that shows with venture funds, time isn’t really on your side
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- Clay
(Founder @ Confluence.VC | GP @ Outlaw)
