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What Do VCs Do?

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  1. INTRODUCTION

    How This Module Works
  2. How Much Do You Know About The VC Job?
  3. The Six Tasks of VCs
  4. The VC Cycle
  5. Quiz 1
    1 Quiz
  6. GENERATING DEAL FLOW
    What Is The Best Way To Generate Deal Flow?
  7. Generating VC Deal Flow
  8. Building A VC Referral Network
  9. Networking 101
  10. The Importance of Branding
  11. The Startup Ecosystem
  12. Service Professionals
  13. Warm Introductions
  14. Co-Investing
  15. Cold-Calling Startup Founders
  16. Making Angel Investments
  17. The Deal Flow Funnel
  18. Analyzing Pitch Decks
  19. Time Management Tips For VCs
  20. The Anti-Portfolio
  21. Quiz 2
    1 Quiz
  22. EVALUATING COMPANIES
    What Are The Critical Characteristics VCs Look For In Startups?
  23. Analyzing Startups For Venture Capital
  24. VC Firms' Investment Strategies
  25. What Is (Really) Scalability?
  26. The Product/Market Fit
  27. The Hard Truth About Network Effects
  28. The Idea Maze
  29. More On Due Diligence
  30. Breaking The Mental Model
  31. Being Primed For The Problem And The Idea
  32. Making The Investment Decision
  33. Quiz 3
    1 Quiz
  34. Case Study: Write The Investment Memo
  35. How Much Do You Know About Term Sheets?
  36. NEGOTIATING TERM SHEETS
    Negotiating Term Sheets
  37. Our Term Sheet Courses
  38. Quiz 4
    1 Quiz
  39. Portfolio Monitoring Survey
  40. PORTFOLIO MONITORING
    Adding Value
  41. What Kind of Value Do VCs Add?
  42. What Is The Background Of Top VCs WorldWide?
  43. Jack Welch's HR Practices
  44. The Reporting Pack
  45. How Much Time Should You Spend With Portfolio Companies?
  46. Quiz 5
    1 Quiz
  47. How Much Do You Know About Exits?
  48. LIQUIDATING INVESTMENTS
    Selling Startups
  49. Testing Founders' Exit Strategy
  50. The Most Common Exit For Startups
  51. Taking Money Off The Table
  52. About Startup IPOs
  53. How Long Does It Take to Exit?
  54. When Raising Too Much Money Makes Exits Difficult
  55. Helping Founders Exit: The M&A Cheat Sheet
  56. Quiz 6
  57. How Much Do You Know About VC Funds?
  58. RAISING VC FUNDS
    Raising VC Funds
  59. Investment Strategy: Which Round To Target?
  60. When VCs Pitch Investors
  61. How Do VCs Make Money?
  62. Case Study: Acrobator Ventures

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What Do VCs Do? Being Primed For The Problem And The Idea
Unit 31 of 62
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Being Primed For The Problem And The Idea

Note: you can start at 3’42 for the topic discussed here, although we advise you to watch the whole video (it’s only 8 minutes long.)

 

Venture Capital is a people business and, therefore, not monolithic. That’s why we like to present different opinions on how to be successful at it, as long as the people carrying these ideas are legitimate.

In an almost direct counterpoint to the previous video, Initialized Capital’s Garry Tan explains why he invested in Coinbase when no one else would. That $300,000 seed check returned over $2 billion to his fund.

His answer: you have to be “primed for the problem”, i.e., possess prior knowledge that will help you better assess the startup’s potential. In Tan’s case, he knew first-hand how hard it was to acquire bitcoins and was therefore in a good position to understand the value and elegance of Coinbase’s solution.

Secondly, Tan was primed for the idea. He knew from his previous job at Peter Thiel’s hedge fund that so-called fiat currencies were ready to be disrupted.  

It’s probably not a coincidence that some of the best early-stage investors of our time such as Fred Wilson, Brad Feld, and Paul Graham are curious about topics reaching far beyond the VC sphere. Having a broad knowledge of the world, its history, and other disciplines primes them well for disruptive ideas no one else can see succeeding.

Do you know of other similar examples, where Investors made a successful bet thanks to prior knowledge about the world?

💬 Let us know in the Comments section below.

👀 Sources & Additional Material

The 7 Secret Evaluation Criteria Venture Capitalists Use To Make Investment Decisions, our webinar on the implicit criteria influencing VCs’ decision-making. You can navigate the video to point #3 – Being Primed (use the white dots in the player bar)

“I don’t look for companies. I look for Founders.” — Masayoshi Son, a perfect example of how an Investor (Masa Son) may be primed by his or her personal history to bet on a Founder (Adam Neumann) despite all odds

“Smart idea, grounded on exhaustive research, followed by a big bet.” – Julian Robertson, or how VCs may be negatively primed and not recognize a disruptive wave

  • Nubank’s founder was a Colombian expat that was puzzled by the complexity of opening and managing bank accounts when he moved to Brazil. He went on to create a fintech that provides quick access to most financial services, which has really disrupted Brazil’s banking market. It has now over 40 million users and recently had its IPO.

    Another case is Printi, created by two expats in Brazil. The father of one of them had experienced first hand the difficulties of the quick printing market in Brazil and was the main motivation behind their business idea.

  • I think being primed is a double edged sword. For example, if Elon Musk was told that Space Business isn’t easy and just told that it wouldn’t work, he might not have started SpaceX or studied about building rockets himself. So, it can act positively if you think it will work and negatively if you think it won’t.

    • There is, indeed, positive and negative “priming”. I give specific examples in the first webinar referenced above. By the by, I believe at this stage that people—especially entrepreneurs—are not primed because they are “told” anything, but because of their own interactions with an idea or a problem. To be discussed.

  • It’s funny to hear him say that coinbase is valued at over $100 billion. It’s currently worth around $15 billion. Being a VC during a historic tech bubble must have been fun.

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