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Brian Singerman shares his insights into how to find the right VC managers
Key Takeaways
- Venture capital has unique risks and rewards, with the top-performing funds reaping the lion’s share of returns, making fund selection critical.
- True differentiation is key when considering new managers in venture capital, with a unique background that can attract founders being extremely valuable.
- Successful venture capitalists build a brand that helps them consistently get into the deals they want, coupled with the ability to identify unique and promising founders.
Transcript
I’m Brian Singerman, I'm a venture capitalist.
Like any other asset class, venture capital has its unique set of risks and rewards. In venture capital, the top-performing funds reap the lion's share of the returns, and you'll have to look into that. So it's critical to get into those top-performing funds. Most venture capital funds lose out, and the reason is most companies in a venture capital portfolio don't work out. So what's required in any venture capital portfolio is to have some huge home runs, some huge companies that just dwarf everything else. If that top-performing company doesn't return your fund, your fund is probably not returning.
This industry is easy, like you follow returns. The whole point of it is to generate returns. If I'm looking at a first-time manager, I mean, that's just going to be gut feel, right? Or this person's your friend. If I'm looking at somebody, you know, who's been in the business for a while, I want to see returns. And so it takes a certain type of venture capitalist to get into those kinds of companies. And so if you can get into the top-performing funds, right, you could do quite well. And here, success does beget success, right? Because you're building a brand, venture capitalists build a brand. The brand of well-known brands of venture capital firms can consistently get into the deals that they want. It is much tougher for a new manager or a new brand to really win the best deals.
If I was going to invest in a new manager, the number one question that I would ask myself is how are they differentiated from every other VC out there? And if I didn't have a good answer to that, I would not make the investment. And that differentiation can't just be surface. It's got to be something real, something that gives that new manager the ability to either see things that other people don't or get into things that other people can't. So if that new manager had some background right, even if they had no investment experience, but they had some background that you knew founders were going to want to take their money, that's an interesting new manager to me.
So if I'm somebody who's looking at new managers, I'm thinking, like, what makes them truly unique? What makes them truly a killer? That's what I'm looking for when I have these strategy dinners, right? And I'm trying to tell like, is this founder somebody that people are going to be drawn to work for, that people are going to be drawn to do business deals because there's something unique about them, whatever that is. And I'm open to that being anything. So a lot of the deals that we've done, a lot of the bigger checks, I'm not the one doing the business analysis or even the market analysis or anything. I'm a strategy guy. And so I much prefer, you know, strategy dinners or strategy brainstorming sessions to board meetings. I'm not a governance guy. I'm just the one talking to that founder and figuring out, do I think that they are a unique founder with a real chip on their shoulder that's just going to win in whatever way is unique to them? And if so, then I want to make that investment.
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