The VC Perspective by Bob Rosenberg

The VC Perspective

If you read last week’s post, you might come to the conclusion that I was pretty negative on the VC thing.  You’d be wrong on a lot of counts.  VC has transformed the world of investing, and the best VCs are disciplined, principled men and women who spend most of their time adding value, creating new markets, enabling new technologies.  I’m lucky to have worked with – and invested alongside – a handful of them, and I continue to learn from their words and their actions.

VC isn’t an easy business.  It’s a long game in a world where long games have become increasingly difficult.  A game where survival bias clouds public perception.

Last week I came across a series of Twitter posts by Frank Rotman that I recommend to you.  Frank, who I’ve neither met nor followed in the past, is a fintech investor, a founder of QED Investors.  He was a C-suite exec at Capital One, where he cut his teeth on financial analytics, and founded QED in 2005.

Frank begins his comments discussing the difficulty of the business and goes on to reflect on the last fifteen years and what, in his opinion, has contributed to QED’s success over four funds.  Here are a few notes from Frank that seem to me to be characteristic of forward-looking, engaged VCs:

Actually, he had me at the first of his twelve points: ‘It’s more important to be an average investor in a target rich ecosystem than a great investor chasing windmills. It’s been a great decade for #fintech which made our jobs easier.’  Prudent, steady – and mindful of the importance of timing to anyone’s success.

‘Winning with consistency requires discipline’ is a point he makes over and over.  And not only attention to the process, and to the market, but to building a team with ‘skills, experience and work ethic’.  And constantly questioning their approach, sticking to basics, not straying too far from where they had deep domain expertise.  

And when it came to structuring an offer to invest in a company?  ‘Price wasn’t what won us deals because we were almost never the highest bid. We obsessed about having a value proposition for Founders that won us the deals we were interested in. Our 95%+ success rate paired with price discipline drove real economic return.’  Smart founders look for smart money, not the best deal or highest valuation.  And QED was willing to work really hard for the deals in which they believed.

And smart investors are committed investors.  ‘Investments based on anything other than table pounding conviction sucked. Insider rounds that extended runway sucked. Investments justified based on their deal structures sucked. Investments based on “the price reflects the flaws” sucked.’  And in retrospect, the best deals were evident in the first two years.  Chasing success over the long haul proved to be a loser’s game.  Better to cut one’s losses than chase a dream that will likely never be realized.

And it’s all about quality.  ‘You can only bet on one horse so you better pick a great one. Break-out winners drove our best returns. Good only drove good returns.’  

Frank acknowledges that, in the early days, they were more willing to cash in early when liquidity opportunities presented themselves, even in QED’s best deals.  His observations about risk are spot on:

‘Liquidity wasn’t always available so taking 10-20% off when we could allowed us to focus on generating as much upside as possible vs. protecting our gains. Truth be told, our advice was more clear-minded after de-risking.’  

‘Confidence empowered risk taking which drove returns. Understanding risk is a beginner level skill. Taking the risk is a more advanced competency. Embracing risk earns you a black belt.’

And finally, that successful VC investing is a portfolio management business.  ‘Over time, we internalized that investing was about a distribution of outcomes vs. any single outcome.’

I messaged and thanked him for his insights.  Smart guy, Frank, the kind of investor you’d like in your corner.

As always, let me know if you have thoughts, questions, comments.

Bob Rosenberg
Educator (Associate Professor) / Entrepreneur / Leader of angel
communities /Entrepreneur in residence at PorterShed
and BioExcel


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