Have you ever tried to reverse engineer something and see what would be the output if you applied the exact same formula again from the start. If you did, you might have experienced the cooking recipe fallacy.
All the ingredients are listed, you have the material, quantities are precise, every single step is detailed, and you seem to follow them patiently, in order. Yet, by the time you reach closure, the probability that it’s actually a success is often pretty low compared to your perceived efforts. A successful recipe takes time and experience, even with a clear set of data.
Cooking is not like lego-ing by the book. It’s alive and subject to our interpretation.
Seed funding is like cooking with infinite uncertainty compared to a Soufflé Grand Marnier.
Multiple ingredients… Team, Market, Product, Strategy, Stage…
Sourced in high numbers from various locations;
Sorted out, selected, matched in a more or less structured way;
Cooked together in different ways, evolving as things move forward;
In an endless competition for validation & appreciation.
It might sound like chaos to have those many attributes that compound together and to which high variability applies. But chaos is the law of nature while order is the dream of mankind (Henry Adams). It is malleable and seems to react pretty well with two things:
Principles, defined as a rule of action that serves as the foundation for a system of belief or behaviour or for a chain of reasoning. Principles don’t really care about the substance of things, they apply regardless. Chaos has no grip on principles. They act as guiding vectors for our decisions.
Horizon because it is a synonym of long term, and chaos can’t stand the test of time. A system will eventually get bored with chaos, the group dynamic will evolve into a certain order, whether it’s arguably a good one or not.
As much as Venture Capital could look like a recipe for disaster, it is also a recipe for singular, creative, new, successful outputs if the right principles are applied throughout a long term horizon.
As guiding principles, know what you’re looking for if you don’t want to end up with a messy preparation, for instance…
What stages are you interested in ?
What type of companies are you looking to fund ?
What is the persona of the founders you are looking to back ?
It can sound very broad, but Venture Capital is also like playing a mix of naval battle and mastermind with ingredients. You process by elimination & selection and from there you refine, it’s actually a lot faster and easier than it looks to have a small bucket of hot deals.
The biases of appreciation, the timing and the competition are what make the final process of selection a bit more complex.
Biases because they can go against principles. As markers of singularity, biases can also be a great things to uniquely spot great companies…
Timing because it’s often slightly too soon or too late as a stage of development. It’s almost never the perfect time (Is there such a thing…)
Competition because it forces your hand, increasing the odds of making a decision based on the wrong factors and without all the information you would normally need to shoot.
Like the prince of pasta or the princess of soufflés, one way to maximize success is to go vertical like Point Nine, Sweet Capital or FJ Labs for instance. The great thing about (the best) specialists is that 1) people identify them better and 2) they are supposedly developing better skills, more in depth experience and an extended network within their area of focus, which is valuable for both the dealflow and the portfolio management.
This being said, even the most generalist investor is actually a specialist of some sort… Because their character defines their lens of appreciation for deals.
There are a lot of moving pieces in Venture Capital. To deal with the uncertainty and the complexity of that sort of cooking, we must maximize the odds of success by increasing capacity and spreading capabilities. Said differently, investors must provide the means to a specialised crew for them to perform at the highest level.
Capacity is cash, we equip the kitchen with high performance equipments.
Capability is people, entrepreneurs must surround themselves with the best people.
The more investors help founders surround themselves with the best people, develop a stronger growth mindset and adjust gears in order to perform, the more likely they will succeed, if given the means.
The final element of a great cooking recipe is timing. If your guests aren’t present when your meal is hot, you’ve cooked for nothing. If your preparation stays too long in the oven, regardless everything you’ve done before, there is not turning back, it’s over.
Timing is a prescient element, it applies to hires, to fundraising, to go-to market, to product roadmap, it’s a success factor or a killer of efforts.
Venture Capital is an attempt to find a path through a chaos of creativity & creation in a kitchen full of possibilities. Once principles are set and the horizon is long, our senses are set to detect signals that will forge our conviction.
For me, the most extraordinary feeling is when a team of founders strikes that chord in me that resonate both as obvious and genius.
It’s not how they envision the solution of a problem but how they understand the opportunity and their process of delivering the right solution, beautifully, quickly, to their users. There is often a before and an after moment.
DICE.FM for Live Entertainment, NABLA.COM for Consumer Health, SWEEP.NET for Environmental Change.
“Venture Capital is an attempt to find a path through a chaos of creativity & creation in a kitchen full of possibilities”
Great analogy. When you see venture capital investment (esp. in early stage) as a subproblem of decision analysis, the job of a VC has a lot of similarities with (mathematical / conceptual) modelling. Intuition is both the cornerstone of your decision system’s inherent logic — and the bias that prevents you from answering the ultimate question : “are my assessments consistent across all uncertainties ?”
Only when you understand that having a perfectly clear and formalized logic is more important than what comes out of your model, will you be able to leverage the potential of modelling! 📈