Matter of Caring

I remember there was one podcast episode where Bill Gurley, GP at Benchmark was discussing investment topics with Howard Marks, the founder of Oaktree Capital. The episode was a gold mine as one is iconic in the early-stage venture while the other in the public market.

During the conversation, Marks made the remark saying that (paraphrased) “man, your business is not good because not only you have tons of uncertainty and you have to hold your position for a very long time.” To that, Gurley just chuckled.

I first heard that conversation exchange some time ago and I didn’t think too much of it. For some reason, I’ve been thinking about that exchange quite a lot lately.

Is there something in common between venture investing and public stock picking? There is gotta be.

Maybe the lenses being used by the public investors are different than the private ones but investing, at its core, is about identifying and backing underappreciated assets before others would - either in startups or in public companies1.

As I was thinking about the Gurley / Marks exchange, what Marks was trying to say was that venture is tough by nature because we often do not have the optionality to get out.

That’s true. And neither do the entrepreneurs we back.

In Chinese words, there is a term called bèi shuǐ yī zhàn (背水一战), which literarily translates to “fighting with one’s back facing the river.” It originated from a famous battle in 205BC, where the underdog miraculously defeated an enemy that was almost 20x larger.

There is something poetic about the story, which is probably why it has echoed through thousands of years of human history.

Humans love a good story - especially a story where the underdog ultimately wins through sheer determination. And you can not be determined when you are always distracted by options.

Maybe the biggest enemy for a superior financial return is not the lack of options, but rather the abundance of distraction and indecisiveness.

Everybody says venture is hard but why do we still have so many people wanting to be a VC?

Maybe people get into the venture (or startup for that matter) not because it’s easy, maybe precisely because it’s effing hard. 

The truth about the venture capital industry is that, unlike the public market, the feedback cycle for venture investing is very long - you won’t know if you are any good at it until 10 years later ( 8 years if you are lucky but not much difference). Many venture professionals churned during such time - before the market responds to their skills, and way before one can build her own confidence up. 

For good or bad, I have made myself painful enough for founders and VCs to get rid of me and I have been hanging around in this industry for a while. But I feel like I still have so many things to learn, every single day. 

Young VC professionals sometimes would come up to me and ask for career advice. And because I have thick skin, I would often offer some. 

The way that I do it is to try to scare them away2 by telling them all the downside of being a VC and watch how they react. If the foolish ones are not yet running away, we will then talk some more.

One of the more memorable questions that I got asked was “what are the three essential characteristics of being a good VC?”

My answer: “Intellectual curiosity, founder empathy, and relentless drive.” And if you have to summarize them into one word, that is “caring”.

This might sound abstract but in our day-to-day life, it’s not. The fundamental of caring for the portfolio companies can guide a VC to see oneself as a company builder, an entrepreneur’s partner, rather than a shareholder. 

Interestingly we are not alone in thinking this way. Warren Buffet in his 1990 letter made the definition of “investor” by saying:

“we believe that according the name “investor” to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.”

A great investor, either on the public side or the early-stage side, has to hold a long-term view. And you can’t hold a long-term view without caring.

Perhaps that’s what Gurley and Marks have in common.

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* The essay was first published at https://nexttrillion.substack.com/p/matter-of-caring

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1 Just like any universally obeyed laws of physics, the price can not outperform the underlying asset forever. Ten years later, as we look back on this period of time, we might be surprised by the stories of GameStop, $70M NFT, and the everlasting bull sentiment across the spectrum, especially during and after a devasting pandemic. Or we might not. Maybe that’s just how fast people are realizing the power of tech-enabled business - so fast that it leaves even someone like myself head-scratching.

2 Or a better term is “to set the right expectation.”