How can you apply strategic thinking to VC without making common mistakes?

Capital allocation is similar to a conductor orchestrating a symphony. It involves making decisions about where to invest financial resources to maximize returns, mitigate risks and achieve organizational objectives. Strategic capital allocation goes beyond mere budgeting; it is about aligning financial investments with the company's overall strategy.

This applies across a whole lot of areas - for example when hiring people who do you select? It is similar when looking at VCs and who can best contribute to your business. Don't just accept the first offer of money, think deeply about what you want to do in the world with your company and then seek aligned investors who will also believe and support your efforts.

The most important aspect is to ensure the data you receive is properly vetted and accurate either through market analysis. This might involve hiring a third party consultant also. Secondly the cost estimates can be benchmarked against prior projects to evaluate whether these are still applicable. Extremely important as pointed out above is to avoid confirmation bias or anchoring bias since information may change during the process. If any sort of bias is included it may result in decisions made which result in significant fiscal issues for the organization in the future.

What is the outcome that you are after - usually you need money, like an engine needs oil to function well - so who will you seek if from? Will they help you achieve your goals through intros? Can they provide you insights you are missing? What experience will they bring - sure, money is one important part but there are other things to think about as well when you look at VCs.

Clear and well-defined investment thesis that outlines your strategic focus so ensure alignment with market trends, emerging technologies, and your expertise.

Scenario building is perhaps the most important aspect in strategy for any organization including venture capitalists. I would develop best, optimal and worst case scenario but at the same time identifying and ensuring you have a plan B and potential plan C for each scenario. Best case scenario would not have this but for the worst case scenario you should always have a contingency plan that what can be done to either avoid this or to reach the optimal scenario. Proactive review of progress with the team allows one to understand where the org. is headed against the original plan & to evaluate potential solutions per the contingency plans. With the above, pitfalls can be avoided while ensuring the org remains on course to achieve goals.

Networking with professionals and reading about global and economic news will allow one to think about broader external trends. Sources such as blogs, books and opinionated articles will help also one about different perspectives. Remember past performance & actions do not necessarily predict future trends since there are a plethora of external as well as internal factors which may have changed. External might include; political, economic, social, technological, environmental and legislative changes. Internal changes may include; processes, people and systems. Therefore, regularly reading blogs, news, networking with professionals & keeping pace with internal changes will allow once to embrace change, complexity & uncertainty.

For venture capitalists to think strategically, they need to avoid cognitive biases so they can make good decisions, set clear goals, think about different scenarios, learn from comments and experiences, and keep improving their skills and mindset. These steps help you make better decisions, lower your risks, and take advantage of chances in the fast-paced world of venture capital. Be the architect of your success, building a legacy of smart, impactful investments... just do it!

By applying strategic thinking many ways, venture capitalists can enhance their decision-making processes, mitigate risks, and contribute to the overall success of their portfolio companies.

ChatGPT Investing is a lifelong journey; continuous learning is essential. Awareness that the financial landscape evolves reinforces the need for ongoing education. This mindset enables individuals to adapt to changes, seize opportunities, and make informed investment decisions throughout their lives.