Stacked Edge: 10 Observations on Venture Capital Investing from an Industry Veteran

I strive to make sure that our founders and investors both understand what it looks like to have an ethical, symmetrical, long-term relationship with a Venture Capital partner.  This wisdom post comes from experience with investing and investors. The short story here is that investing is risky, challenging, and rewarding, and too few people are reliably honest. Some investors manipulate data in the face of market challenges and pressure to produce strong returns. (These observations might not be popular with everyone, but they are honest and accurate.)  

If you're an individual investor who is interested in participating in VC, this is a chance to be 'in the room.' I hope these pieces of wisdom that I've gathered over 20 years of running a VC and wealth advisory firm will improve your understanding of how to navigate the private markets.  ‍

Wisdom for VC Investors

On Innovation Financing

• Historically, institutions and a relatively small handful of technologists have dominated the financing of startups. That has exacerbated the chasm between the ‘haves and have-nots.’  
• There exists a tremendous opportunity to thoughtfully and credibly include mainstream investors in the process of financing the Innovation Economy.    
• I am befuddled by how little Institutional Investors know about the funds and the people they invest in.  
• With all the intellectual and empirical resources right under their noses, it’s shocking that university endowments still resort to carving up pie charts to allocate capital.      

On Securities Laws

• As technology has grown to impact almost every element of life, antiquated and poorly designed securities laws have prohibited most people from participating in the Innovation Economy.
• I have never understood securities laws that prohibit testimonials. The foundation of free markets is based on the free flow of information so buyers and sellers can make informed decisions. What better way to assess an investment manager than to let past and current investors share information?  
• If securities regulators truly wanted to protect investors, they would bring about policies that created more fee and performance transparency, especially in private markets.  

On the VC Industry in 2023

• The most commonly heard question at institutional investor conferences is, “Do you believe your marks?”  
• In evaluating hundreds of funds, I can say with confidence that each fund’s valuation policy varies widely, with the range as wide as “outstanding” to “scandalous.”  
• For many funds, especially of the West Coast variety, the convertible note has become the new weapon of mass deception, used to obscure falling valuations after participating in lofty investment rounds.

If you’re an investor or an advisor, what are your observations? Where do you see hurdles and potential?

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