Looking Right vs. Being Right

There’s a huge difference between ‘looking right’ and ‘being right’ in venture capital and startups. But because of the duration involved in building these companies, you sometimes have to make sure to be looking, even if it’s at the expense of being.

We’re in an industry heavily driven around brands, momentum and hype. Those that understand this know that being right (also known in the business as ‘making money’) is always a function of time. Those in the business also know you can look right without ever really being right and still raise billions of dollars.

Often what determines the difference is the exit point. In venture historically the illiquidity of the asset class locked you in for the full ride. Companies get sold, go public or rarely had opportunities to sell secondary. Despite this, should we spend more time thinking about when to get out of a company, industry or fund? Should we be thinking more like traders?

One of the all time great traders George Soros said — “When I see a bubble forming, I rush in to buy, adding fuel to the fire,”’- just as the creator economy folks turned to crypto and are now turning to generative AI. There is no shortage of bubbles forming at any point in time in the startup world. We sniff blood in the water and capital in the air. The denizens of twitter lean in.

This is not an irrational action. Despite the eye rolls it generates from the long term believers in those trends. The reality is, even if you’re not the first person in the bubble, if you’re plugged in you’re highly unlikely to be the last. Timing getting into a hype-cycle is the looking right part, timing getting out is where you get to be right.

The temptation to ‘look right’ is extremely powerful as an investor though. Successful new venture capital firms are usually built on the premise that someone is appearing to be hitting on all the right notes.

But there have been some incredible technology super-cycles over the past decade that ripped and are now bust but could yet rip bangers again. The see-saw of time cycled returns waits for no-market.

Fintech was the trade of the century, until it wasn’t. Crypto? Generational returns. Until it wasn’t. Even AI, potentially the next industrial revolution in terms of productivity gains and wealth creation will too see its light one day shimmer to dark.

Paradigm and Ribbit built two of the greatest emerging brands in venture over the past decade by riding waves. Someone will do similar in AI.

But, all that ‘looking right’ can make you start ‘feeling right’ as opposed to the goal, ‘being right’. You have to remember that all good things come to an end.

Recently, a large institutional LP opined to me that Benchmark are great long duration traders. They get in and get out of companies and industries like clockwork — they were in all the good social co’s, then they’re in all the good cloud infrastructure, now they’re getting into the hottest AI companies.?

While on the other hand Sequoia are great company builders, they think about what carries a company to perpetual success and rarely lean into market cycles early, usually waiting until the opportunity for building a legendary company becomes clear. This is even reflected in their fund structures .

Both work and elements of the style of investing come from the people at the wheel of those firms and the tools these firms develop as they grow. Once you build a brand you can make an awful lot more money consistently by moving from having to shoot for non-consensus to consensus right. You just need to deploy a lot more capital as the multiples get expanded quickly and you compensate with size. It’s lower risk, still chunky reward.

Once you look good there’s also an element of self full-filling prophecy. You get to become the influencer on what is consensus right — where the cost of capital is lowest and momentum strongest.

Our industries highest public accolade is literally called ‘The Midas List’ — those with the golden touch. If you were early in a Hopin, Gorillas, FTX etc… You were on that list last year. That momentum helps you get into better companies and helps your existing investments by drawing more attention to your taste. You looked right, ended up wrong, but bought yourself enough momentum to potentially still come out on top.

It’s the founders job to build companies. It’s the investors role to help for sure, but really it’s to generate returns.?

I wonder if you spent a little bit more time thinking in trades, rather than just thinking about the company. Would you end up making better investments or would founders even end up picking better ideas?

Maybe the next market cycle will go on forever. Maybe this one will be different. Or maybe just like many that came before it’ll rise and fall and those that had the good sense to depart along the way will be the ones laughing.

As in the end, the challenge with making money in equity investing is you eventually need someone to buy your bags. Choosing the right bags is the most important piece, but knowing how and when to sell them puts you on another level. Else you be left holding them when in the fullness of time, most things go to shit.

Thanks to the assorted pals that read & gave feedback on this most ponderous of topics — lean into the hype or maintain your intellectual high horse. It’s honestly not that easy a decision.