On this special segment of The Full Ratchet, the following Investors are featured:
- Somesh Dash of IVP
- Nnamdi Okike of 645 Ventures
- Charles Hudson of Precursor Ventures
We asked guests for the most important piece of advice that they’d share with folks early in their venture career.
The host of The Full Ratchet is Nick Moran of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
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Transcribed with AI:
0:19
Welcome back to TFR on today’s special segment, we ask guests for the most important piece of advice that they’d share with folks early in their venture career. Here’s the segment called key advice.
0:36
On today’s special segment, we have Somesh dash of IVP. You could share one piece of advice with a young, new investor. What would you tell them?
0:43
I would probably say, think about liquidity as you’re making an investment. It’s very hard when I think you’re passionate and you’re in the earlier throes of a company, seed Series A, even Series B, to think about the end state. What would the public markets look at if they valued this company. Is it cash flow? Is it revenue? You know, one of the things I really admire about IVP is we were one of the first crossover funds. Our founder, Reed Dennis, created a culture where every Monday in the last 20 years, we have a page that’s our public holdings. We look at the comps, we look at the multiples. It’s just a reminder that this is the way companies trade in the public markets. This is the metric free cash flow that people ultimately value these companies on, so we can get lost in our little land of maybe, like, it’s only 40x ARR versus 60. Ultimately, that same company, nine years later, is going to have to generate a lot of free cash flow. So my advice is, I think a lot of people think about the myth of venture capital, they want to get excited about finding the next Google and meta. Those are extremely those are extremely rare, extremely rare, and so part of your job as a good fiduciary is working a company, putting your effort in, helping a founder, but at the right time, if you have the opportunity to get liquidity, you should think less about is this. It could be a 5x if I weigh and it’s only at 3x now, and just realize that your LPS value liquidity, and so if you have a portfolio, not everything is going to work. And if you have some sort of profit, positive gain, and you have an opportunity for early liquidity, you should take it, because the reason is, people are going to look for a track record. They’re going to look for early signs. I was lucky that unbeknownst to me at the time. You know, Business Insider was acquired. You know, clout was acquired. We had a couple things that I’ve worked on early in my investment career that ended up having liquidity. And I didn’t know at the time, but one of our limited partners said, hey, it was really good to see you have kind of a report card, a track record that you’ve seen the full cycle as a young investor, from sourcing investing to liquidity. So I would say, probably keep that liquidity concept, you know, in the back of your mind. You shouldn’t think about it every day, otherwise you’ll drive yourself crazy. We’re not hedge funds, but that’s that’s probably the one
2:52
piece of advice on today’s special segment. We have namdi okike of six, four or five ventures. If you could share one piece of advice with a young new investor, what would you tell them?
3:03
So the biggest piece of advice that I would share with a young investor is to really understand the power law concept, because the power law concept, in my view, really drives every key element of venture capital investing. So I’ll maybe unpack that a little bit. So the power law concept basically describes this idea that a very small number of companies generate the vast majority of returns of our asset class, and that’s been true across cycles, across decades, what have you. And so if you’re investing in a power law world, there are certain things you really have to understand. The first thing you have to be able to internalize is the failure rate. A lot of young investors have trouble with failure. Everybody does. But I think when you’re investing, especially, you don’t want to believe that, hey, the early deals you do are going to go to zero, or have the chance to go to zero, and that might result in you being very risk averse, or looking for consensus things, or trying to find ways to reduce risk. Right? As an as an as investor, you want to learn lean into risk. And you really want to, in a sense, look at things from the perspective of like, what could go right? Which is a very different approach, right? You have to be able to say, look like this might fail, but if it, if it succeeds, it could succeed with 100x versus like, I’m looking for a safe 2x or 3x or what have you, which is not the way to win as an early stage investor. So the power law kind of informs, like, how you look at deals, what you look for. It informs how you think about even what firm to join, right? Like, you know, I think as a VC firm, like you want to believe that you have some kind of proprietary way to find those power law companies, right? And I think if you don’t have a way to do that, like, you’re not going to be very successful as an investor. Because if you look at the best firms in the industry, like, they have power law companies, they have companies that return the fund, like, that’s just the nature of of our business. So I think as a young investor, you want to believe that you’re working on a firm that has that ability. And. That you’re looking for companies that have that ability. And it just, it just is a it creates a level of discipline, intellectual discipline that I think like, prevents like cutting corners, prevents looking for safety, prevents like risk aversion. It just like, just kind of like, if you think about your your your day to day in that way, you know, like, it kind of, it kind of forces different behaviors. And I think that’s really important to think about as a young VC, because that’s the game. And even even, like now, having started a firm and running for 10 plus years, like, I think about that every day. I think about like, how is the power law impacting our portfolio. How do we think about following on? How do we think about portfolio construction? It kind of like it gets into, like, a lot of aspects of the daily business. And so I think just understanding that early on is super
5:58
critical on today’s special segment, we have Charles Hudson of precursor, if you could share one piece of advice with a young, new investor, what would you tell them?
6:05
This is what I tell my team all the time, figure out what you are uniquely good at, and it’s probably either people product or markets like, figure out which of those things you’re really good at evaluating, and then make sure you’re at a firm where the thing that you’re good at doing is highly valued. And I’ve met a lot of people who are, like, very good at quantitative analysis, and they want to be an early stage venture from them, like, it just isn’t it isn’t valued. I’m not saying it’s not valuable. It just isn’t valued. And why go to a firm or us or a sub sector where your strength isn’t valued?
6:42
Brenna, that will conclude this installment of investor stories. If you’re enjoying the program and would like to see it continue, take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today until next time over. Prepare, choose carefully and invest confidently. Thanks for joining me.
