PS#063: Lessons Learned from 2023

Today, I’d like to share my top ten lessons from 2023.

One of my favorite things about this industry is that I feel like I am always learning. With so many variables at play, there is always room for another lesson, a new situation, a different outcome, another set of experiences, etc.

Every time I think I’ve learned quite a bit, a new door opens and shows me how much more I still have to learn. This game has levels to it.

So, with that being said, my top ten lessons from 2023…

1. Back A+ teams.

Truthfully, this is a pretty common piece of investment advice.

I’m sharing it with you today because I now understand what it means. This year I saw what it looks like when an A+ team meets a massive opportunity.

Spoiler, great things can happen.

One of my portfolio companies had been performing well, but had not had its breakthrough moment. With the recent breakthroughs in AI and the democratization of powerful LLMs, this team was able to take advantage of the technological shift. They had the right combination of technical talent and domain expertise to adapt their product to the situation. It resulted in an incredible growth rate and eventually a game changing exit for our fund.

2. A+ teams means different things in different situations.

I think one of the misconceptions about this industry is that A+ teams all look the same.

In my experience, A+ teams mean different things in different situations, at different stages, in different industries, with different technologies, etc. It all depends on what this situation or opportunity will require to be successful (again, easier said than done). A+ teams come in all different shapes and sizes.

As an investor, figuring it out requires a lot of time, hard work, learning about the industry, and identifying what is the right combination of skills and experiences.

3. This is a long game, even longer than you think.

This industry requires a lot of patience. A lot.

It takes a long time to build a complete portfolio. It takes a long time for these companies to grow into significant businesses. It takes a long time for a fund to reach liquidity and return capital to its investors.

It all takes a long time.

To be honest, I don’t think I realized exactly how long it would all take. I’m sitting with a fund that’s about halfway through its lifecycle and we’ve still got a long way to go.

Of course, because this all takes a long time (and like anything over a long enough period of time), your portfolio will have its ups and downs. All of your companies will experience their own periods of sustained struggles and successes. It just isn’t linear. It can change on a dime. The companies that were excelling at one stage will find new challenges at the next. The ones that started off slow may find their stride and finish strong.

We do all of the work in our investment processes (and afterwards) to make sure our companies are prepared to handle those ups and downs.

4. You can use other people’s work, but do it for yourself too.

Remember, we are doing this job with incomplete information.

We don’t know for sure what will happen in the future. The theses, narratives, and stories can almost always be told from both sides (i.e., the reason to do the deal or not do the deal). That’s the key issue at the heart of this industry.

You need to do the work to see what you believe. Otherwise, you’re just making bets based on other people’s work. Personally, I don’t think it’s a good idea to outsource this work to other people. You never know how their set of incentives or decision-making processes differ from yours.

I’ve found it’s best to do the work for yourself.

5. Clear communication & transparency are so important.

I’ve found that clear communication and transparency is a super power in this industry.

The more you’re able to clearly define what you will do and then actually do it, the more your reputation will build. It’s hard to do and it takes a lot of time, but it’s really important.

If you start with this, it will compound over time. You’ll have opportunities (that others won’t) because you’ve built that trust and reputation in the market.

As I said, this game is longer than you think. Over the long-term, these types of things matter more and more.

6. Build theses and share them freely.

I’ve talked about this one quite a bit. I’ve even built ​a course​ around the concept.

But, the more time I spend in this industry, the more relationships I build, the more I believe that sharing your theses is one of the best things you can do.

Good ideas are relatively common. Finding people who can execute them at a high level is not.

Sharing your good ideas and work with others will help you find those individuals who can execute at a high level. That’s the name of the game.

7. There are no rules, just best practices and first principles thinking.

Honestly, I’m amazed at how much more I believe this each and every year.

To be clear, I’m not saying that there aren’t laws. I’m saying that this industry is all about making up the best way to do things. A new sourcing method? A better way to do diligence? A better piece of technology? A new deal structure? Etc. There are opportunities all around us to improve this industry and the processes within it.

My two cents – collect the best practices (no need to reinvent the wheel) and pressure-test them constantly to make sure they are still in fact the best. For the ones that need improving, push yourself to make them better. Iterate on them, and in turn, you’ll become a better investor.

8. Fear often leads to a “need-to-have,” which is a powerful investment thesis.

Venture capitalists often talk about investing in “need-to-have” products vs. “nice-to-have” ones.

It’s a simple concept. Invest in the things people need because they will be willing to pay for them more often than not. Well, finding “need-to-have” products is a lot easier said than done.

In my career, I have found that the “need-to-have” products are often born out of some kind of fear. It’s a powerful motivator.

9. Technology has to fit into the way people do or will work.

We are living through a golden age of technology.

The rapid progress and advancements that are being made are nothing short of remarkable. With that being said, technology alone does not create a big business. It requires a customer base adopting and paying for said piece of technology.

The adoption piece is critical. Technology needs to be fit into a workflow or a solution that can allow for some kind of behavior change. This is often the hardest part.

Take generative AI and large language models for example. The technology itself has been available for some time, but widespread adoption didn’t happen until we had a more accessible form (i.e., ChatGPT). If you look around, you’ll see similar stories all over this industry.

10. Find time to think.

I’m often asked, “What’s the biggest mistake young investors make?”

It’s a great question.

In my opinion, it’s not finding time to think.

A lot has happened in the world over the past year. Even more has happened over the past few years. If you don’t take the time to think about it and what it really means for what you’re trying to achieve (i.e., investing, building, etc.), the world will make the decision for you.

We live in an age of information overload and you can spend your entire day, month, year, etc. ingesting it all. Stop. Take some time. Really try to process and understand what’s happening in your industry, focus areas, investment theses, etc. so that you can operate from a place of first principles. If you can clear your mind and separate from the herd, you’ll be a better investor over the long haul.

Alright, those are a few of the lessons I’ve learned (or relearned) from this year.

Hopefully, these help you build the right approach for 2024. In either case, I have no doubt that 2024 will be filled with many more lessons for us all to learn (or relearn).