Latest / The Learning Corner by Precursor / Episode #51: Three Venture Paths, When Great People Leave, Solo Founders

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Episode #51: Three Venture Paths, When Great People Leave, Solo Founders · The Learning Corner by Precursor

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  I think if you're gonna build up a company that attracts really high potential people, some of
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  them believe it will be a launching pad for them.
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  And learning to see that as a mark of success and not failure is a growth area for lot
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  founders.
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  It's the week of October 6.
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  Welcome to the Learning Corner, a Precursor Ventures podcast.
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  Welcome to the Learning Corner by Precursor.
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  I'm Mia Farnam, and I'm joined by RGB and managing partner, Charles Hudson, where we will
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  be talking through the articles and Goodreads that caught our team's attention over the past
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  week.
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  Our first topic is a LinkedIn post by John Varonis from Unusual Ventures outlining three
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  strategies he's seeing VC's chart down across the venture market.
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  The first approach is to raise as much capital as possible, enabling you to participate in
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  deals with less price sensitivity, though this requires finding LPs willing to accept lower
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  returns and have lower cost of capital.
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  The second strategy involves building a fund with a completely differentiated approach that
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  founders recognize and value.
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  This differentiation attracts founders who seek partners capable of providing more than just
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  capital and negotiating terms for funding rounds.
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  The third approach is a volume based strategy where you invest broadly and hope to pick
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  winners over time while hosting flashy and fun events to make the journey a little bit more
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  enjoyable along the way.
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  John closes the post with a takeaway that the first route doesn't necessarily generate the
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  venture returns LPs typically expect, and the third requires exceptional luck to succeed.
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  The second is actually the most challenging strategy to execute effectively, and not all
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  funds will be able to do it well.
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  So, Charles, question for you.
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  Do you feel like
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  Yeah.
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  After looking at these, that these three different lanes accurately describe the state
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  of venture today?
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  I think it's a pretty good picture, and shout out to my fellow business called Fastmate John
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  for his great post.
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  There are think, you know, we've talked at length about the mega AUM firms and sort of the
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  business they're playing in.
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  I continue to believe as long as they can clear the cost of capital hurdle for their capital
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  providers, it might be totally rational for those folks to put hundreds of millions or
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  billions of dollars to work with those managers, and they'll get the returns that they
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  need.
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  That's not for me to say.
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  I do think the middle lane, though, is where all the tension is in venture, and I would say
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  those are the people who came from an era of more of a craftsman approach to venture who
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  really wanna stay that.
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  Maybe you're a sector specialist.
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  Maybe you like that 10 to 15% seat ownership Okay.
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  Prices.
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  It's hard to pull that off.
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  But I know a lot of people who are in this business were like, that's what I got in this
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  business to do, and that's all I know, and I don't really wanna change.
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  The third bucket I would probably have maybe a slightly different view.
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  I do think there are alternative strategies which are like, hey.
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  I'm just gonna try to get into as many good companies as I can.
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  I hope I have a great one.
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  And some of those people are price sensitive like we are.
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  But other people I know are price insensitive, and they're really running an access strategy.
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  So if I were to say to recast maybe what John said, I'd say there's an access strategy at the
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  bottom, which is, like, get to as many good deals as possible, however you define good.
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  There's the middle classic seed, early stage VC strategy, which feels like it's under
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  tremendous pressure.
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  And then there's the game that the 10 biggest firms in our industry are playing, which is
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  massive, massive fund size to chase these hopefully super compounding companies.
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  And then it might be a little bit more of a technical question, but I assume objectively,
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  if people are looking at the three different strategies, everyone would love to assume that,
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  hopefully, that they would be playing in that second strata.
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  So maybe it's a bit more technical, but what percentage of funds do you think they truly are
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  embodying that second option?
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  Okay.
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  The one that's building a long lasting founder first fund, and then what percent actually are
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  doing this very thing in reality?
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  I think most most VCs think they're in the second bucket.
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  If you're in the first bucket, you know it.
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  And as as I've learned at precursor, if you're in that third bucket, it's a really hard place
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  to be because it's not a popular strategy with LPs.
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  And I think a lot of the reason there's so much angst in Ventraland is a lot of people are
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  crowded into that second lane.
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  And as John mentioned, right now, that lane is under a lot of pressure.
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  That's where kind of the no no unintended.
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  The rubber beats the road.
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  It is that, like, the big firms are pushing down on you for ownership, and they're picking
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  off a lot of the attractive companies that would have otherwise been available.
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  And the question is, like, does that value proposition of being founder first services and
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  being helpful and kind of class and see, Does that still resonate with founders?
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  Is that still Yeah.
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  The value pop that they're looking for from the capital providers?
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  And I think the answer for some for some of the, like, nine nine six cracked founders, I
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  mean, in San Francisco is no.
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  Isn't what they Yeah.
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  That isn't what they care about.
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  It's what they value.
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  And so then if you're a fund manager who built up your entire career in that second bucket,
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  what do you do at this moment in time?
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  Yeah.
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  That is a definition of professional angst.
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  It is akin to the venture capital industry having an industry wide midlife crisis.
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  Many of us started firms or got into the business at a time where that's what you did.
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  You built a founder first firm that stood for something that had values, and the world was
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  stable, and things have changed.
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  And I think anyone who's not reexamining whether their fund model needs to assist and
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  still fills a whole ecosystem is doing themselves and their LPs a great disservice.
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  And then my last question here is, I guess, for folks maybe are attempting to build on that
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  second route.
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  At what point do you actually know that you've done it?
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  Because I think everyone only knows what they know when they're looking at their own fund and
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  believes that they're doing the best route.
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  And then also, can you pivot and become that if you weren't that for the first two funds?
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  I think changing who you are as a fund manager is really, really hard.
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  I talked to a limited partner earlier this week who said, well, how do you as a pre seed
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  investor think about all these people who are pushing into your area?
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  I said, well, they're doing it for two reasons.
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  I don't worry about the people who are doing it out of necessity because their heart's not in
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  it.
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  You know, they'd rather be doing post product market fit companies with revenue, but those
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  are too expensive, so they're coming my experience has been you can't fake interests in
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  pre product market fit investing.
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  So I'm like, don't worry about competing with those folks.
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  As soon as they can get out of that category, they will.
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  People I worry about are the people who are coming into pre product market fit investing
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  because they genuinely enjoy the work.
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  Those are the people who are gonna stick around.
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  Those are the people who are gonna do the hard work.
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  Just stick it out.
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  And I think in some ways, it's kind of like if you're a b to b startup and you decide to
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  become a consumer company, does that pivot sometimes work?
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  Yeah.
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  And then it can work in the reverse too.
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  You you can have a Slack.
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  But I'd say at average, most people start firms and pitch strategies that reflect what they're
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  good at and what they enjoy doing, and that's really hard to change.
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  Well, our second piece is titled When Great People Lingive.
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  It's created by Ricci Taparia on his Substack, TAPS notes.
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  The piece centers on the painful reality that great people do in fact leave.
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  And from a leader or founder's perspective, there are specific steps you should take to
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  process, understand, and learn from that news.
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  The three steps highlighted are, one, figure out if they can be saved.
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  Ricci admits that the answer is almost always no.
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  Two, understand the why.
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  So why are we sitting down and having this conversation?
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  And three, handle that transition with grace.
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  Ultimately, leading this event with introspection makes it possible to keep these
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  team alumni as advocates in the outside world, and Rishi acknowledges that critical departures
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  are most painful when teams are small, not like they ever get easier.
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  I know that so much of our support for our portfolio is around talent issues, and team
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  departures are something that will inevitably happen to every company along the road.
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  What have been some of the common themes or most important learnings that you've seen?
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  I talk to the founders of our portfolio about this a lot, particularly because the set of
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  people that are likely successful and necessary for your company in going from zero to one, not
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  all of them are gonna move it to the finish line.
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  And some of them will leave by their choice, and some of them will leave by your choice as a
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  founder.
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  One thing, I mean, I really like this post, and I've actually said it to a handful of our
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  founders who've had departures recently.
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  Sometimes you should be proud that you've built a place where people can use it as a launching
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  pad for their career.
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  I'll never forget when I was interviewing for investment banking many, many years ago coming
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  out of college, I met an MD at a big bank, and I was interviewing with him.
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  And he goes, look.
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  We're really proud of the fact that a significant chunk of our analyst class goes on
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  to be wildly successful executives.
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  In the future, go, isn't that bad for the business?
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  He goes, well, who do you think they call when they need an adviser or financial services?
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  And they take the things that they've learned in our best practices in our business, and and
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  they take those learnings and lessons and habits with them to the new places, and we're
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  we're sort of seeding the the world with our way of thinking.
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  I have friends at McKinsey who've told me the same thing.
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  And so I think one of the challenges is I'm telling you a very good long term, highly
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  elevated story.
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  When you're a lead product manager who's your best person leaves and you're stuck, you're not
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  thinking about the long term.
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  You're thinking about the next release or the next version of the product and who's gonna do
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  that work.
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  The only thing I will say is every time somebody leaves, in most cases, there are far
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  more people who stay than leave.
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  So if your star person leaves, everybody who stays at your company is gonna watch the way
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  you treat that person on the way.
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  What do you say about them?
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  How do you handle their departure?
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  Because they're gonna say, someday, I might be that person.
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  And if that person was treated poorly on the way out, more, what does that say about what I
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  should expect from this founder and this leadership team if I make a similar decision?
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  And the flip side is I think good departures require coordination from both parties.
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  It requires the CEO and the leadership to be gracious on the way out, and it also requires
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  the person behaving to be gracious and accommodating to some extent on the way out.
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  I mean, we're coming up on peak season, which is January.
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  Because everybody goes home and sees their family, and they go, how's work?
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  And they're like, it's okay, or I kinda wanna do this other thing.
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  New will come back in January, and they're thinking, do I want 12 of this, whatever this
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  is?
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  And so I think it's one of those things where, like, the more it happens, the easier it is to
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  appreciate it, but it's always hard at the moment.
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  One thing that I feel like I constantly talk about with super early stage founders, so think
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  pre seed, seed, is around the reality that there's not as much cash compensation to lure
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  in wonderful talent and keep them to stay.
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  Equity, of course, is obviously the carrot, but there's a long time to wait there.
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  What list or really impactful things do you think founders should embody or take very
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  seriously to keep good people there?
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  And again, I totally agree with you.
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  There are some things that are just completely out of your control, and that's okay.
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  But what things could you control?
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  My one big learning, having managed a bunch of high potential ambitious people is high
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  potential ambitious people need a constant diet of new challenges.
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  And what I find is a lot of times if people feel like they don't see a way to grow in your
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  organization and they're on an aggressive ramp, they will find a place where they can grow.
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  So sometimes the question is looking at, hey.
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  This person was doing this job six months ago.
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  Have they outgrown it?
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  Or, wow, this person's a really good problem solver.
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  Is there a new interesting initiative or problem?
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  I will say this.
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  When I worked at Google, it wasn't a very long stint.
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  The era of Google, when I was there, I think they were very good at constantly taking these
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  ambitious people and putting them on new conscience and new projects that had no
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  structure, that had, like, not been figured out.
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  And that's just like a fun challenge for ambitious people is to go figure out something
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  new versus, oh, I'm shipping the nineteenth version of this product that I've been working
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  on for fifteen years.
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  It gets kinda boring.
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  And so I think it's a boundary you have to be aware, like, what what do I need to feed this
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  person to keep this job?
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  You know, my friends at Google, I say, oh, I've been here for ten years, but I've had, you
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  know, 10 different jobs.
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  A new job every year, a new project, a new mission in, new groups.
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  And I think that variety we can make even an existing job feel more interesting.
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  And also balancing that with not burning out your best people too because I think it's so
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  easy to give as many projects as possible that are important and a little bit deeper to the
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  people you know who can get it across the line.
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  But I've seen this happen a lot with, like, my friends who sit in chief of staff roles is
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  Oh, yeah.
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  Just constantly drinking from a fire hose, but never really being asked the question by their
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  leaders, where do you wanna see yourself next in the company?
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  And, like, how can I make that an easy transition?
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  And not like you're completely underwater all day to never think about a future here at the
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  company.
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  My first job when I worked at Eight Cutel, I had two managers who used to always tell me if
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  you want something done, give it to a busy person.
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  And they used to, like, get me nuts.
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  I'm like, that seems like you know, at 22, I'm like, that seems like the opposite.
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  Why wouldn't we give it to somebody over here who still has capacity?
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  Like, oh, well, the busy person is the person who's in demand because they get stuff done.
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  And I do think what you just said is very wise counsel.
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  Well, our last piece is a LinkedIn post by Itamar Novik from Recursive Ventures who
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  discussed the counterintuitive dynamic from his perspective that has traditionally existed in
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  venture capital, investors not investing in solo founders.
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  Despite numerous examples of successful solo founder companies, many venture funds choose to
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  abstain from the structure, citing data that cofounded companies consistently have better
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  outcomes.
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  Idamar argues that this is largely survivorship bias.
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  Funds invest in more co founder teams, so the percentage of those performing well is
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  naturally higher compared to solo founder teams.
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  He highlights specific qualities that make solo founders far more attractive, like the ability
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  to be more decisive, ability to maintain a clearer vision, you can operate faster, be more
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  accountable with no finger pointing, to name a few.
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  We've been investing in solo founders at Precursor for as long as the fund has been
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  around.
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  From your perspective, what repeat characteristics have you found that make those
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  models work?
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  And then what are some that make them far more difficult from your perspective?
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  I think any solo founder associated should also check out Julian Weisner's solo founder
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  initiative.
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  It's really cool.
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  I usually have one question when I meet a solo founder.
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  Are you on your own because you haven't found the right person?
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  Or are you on your own because nobody can stand you?
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  It's a highly subjective, totally unfair question.
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  We have some solo founder outcomes where people have brought on a cofounder a year after they
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  started.
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  Actually, some of our best companies have this pattern.
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  We have other companies where it's a solo founder, but they built a really great founding
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  team around them of early employees who have way more equity than they'd otherwise have, but
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  they're not founders.
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  And I've also met teams where I just said, boy, does this feel like a shotgun way?
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  This just feels like the two of you got together to start this company because the
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  person running it really didn't wanna have to go out and answer the solo founder question,
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  really prefer a solo founder to a poorly matched team or a poorly configured team
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  because the advantage, I think, of being a solo founder is you have so much more equity to
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  distribute to other people, and you can sometimes make offers that are just
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  unimaginable for co founded teams.
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  Yeah.
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  Second, I think sometimes if you have a technical co founder who's good but not
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  amazing, you've tied up a ton of equity in someone who's probably unlikely to be either
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  your VP of engineering or your CTO, and that comes back to cause problems later.
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  But look, the startup journey is emotionally taxing and trustful.
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  And the thing I worry most about with our solo founders is the emotional part of the journey.
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  At least with a cofounder, there's always the chance that on the day that you're low, they
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  could pick you up.
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  And the day that they're low, you could pick them up, and you have this, like, natural
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  counterbalance.
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  You have this division of labor.
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  Not one person has to do everything.
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  It's just easier, I think, to share the low if you could find the right person, says the guy
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  who started this solo Jew deflag to take this.
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  I was gonna say that all checks out of being this great sounding board and emotional support
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  if you have picked the right person.
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  If you haven't, it's going to add far more issues than create value long term.
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  I'm finding founders are asking me more now than ever before, basically, like, what they
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  should do if they're solo.
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  And I always wonder if they're asking me basically two different questions.
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  Is it what looks better for fundraising versus what are actually the skills and gaps that I
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  don't have that you think could be supplemented by somebody else that could help me long term?
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  But it's happening more now than ever before.
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  Also, think with AI tooling, you could do more as a solo.
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  It used to be if you didn't have a title with Rollander, you had to go on Up or Korea to,
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  like, find a friend to work on Sunday nights and weekends.
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  You couldn't really make any progress.
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  I think some of this antipathy towards solo founders comes from that era, which is like,
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  hey, if you were just the random MBA student without a technical cofounder, what could you
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  really build?
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  Or if you were the random technologist, who's gonna sell this to market?
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  But I don't think we live in that world anymore.
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  I mean, even on the panel that we hosted for our pre seed boot camp with our pre seed seed
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  investor friends, all of them typically said, in the past, maybe they didn't love a solo
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  founder team.
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  But now, that basically is off the table because you can accomplish so much.
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  I guess last question close out here.
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  When someone is building a company and trying to decide whether they should wait for a
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  cofounder or not, so just start building, what should they consider?
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  Like, what are the top things you should just ask yourself?
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  I think the question is, like, is there a critical skill set missing?
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  Someone told me, hey.
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  I wanna build, like, a nuclear reactor company, and I don't know anything about nuclear energy.
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  I'd be like, you probably should find a nuclear person.
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  If you told me, hey.
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  I wanna build this consumer service, and I think I can bootstrap it, or I think I can
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  build the community before I build the product, then I believe you should get started building
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  the community.
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  Or if you're like, hey.
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  I'm gonna build you know, in the olden olden days of startups, a lot of startups got started
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  with one contract with one customer, and that customer was funding the development of the d
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  one version of the product.
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  And so I would hope that people wouldn't wait on a cofounder to show up unless that person
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  was absolutely essential and unblocker to making any progress of whoever.
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  Because I feel like the best way to attract a great cofounder, if you don't have them from
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  the beginning, is to make progress and have something to show someone.
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  That instead of saying, like, I need you to build this, it's more like I'm giving the
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  opportunity to join.
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  Well, we are all out of time today.
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  Thank you, Charles, for stopping in.
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  Thank you to our listeners for popping in as well.
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  Please like and subscribe, and we will talk with you all next week.
• 18:57
  Thank you.
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  Bye.
• 18:58
  Bye.