Boiling Frogs

I was responding to a pitch this week. Stellar team, big market, demonstrated customer need. I wasn’t going to invest, despite all that. I wrote: “not the kind of thing I invest in.” I’ve written this thousands of times in my life. But I knew that wasn’t really the reason, so I erased it.

I wrote that the idea wasn’t risky enough and the things that have made me money have all been very risky. But if they then assured me that it was far riskier than I thought I would like the company even less, so I erased that. Maybe it was that the ineluctable risk was too low? That felt like an invented reason. Perhaps it was that the idea just wasn’t crazy enough. But the founders had gone to the best schools, the best business schools, worked at the best companies. What would it mean telling them they weren’t crazy enough? Going after a huge market with formidable competitors was kind of crazy; I’m not really looking for crazy.

Gut decisions are bad practice. I try to make gut decisions not gut decisions. When I have a gut feeling about something I interrogate my gut: what is the reason behind this feeling? If I can dissect the feeling into underlying reasons, I can reason about them, I can see if they make sense or if they’re a statistical artifact of a low sample size. If the latter, I change my mind. I do this all the time. Gut decisions are unreliable.

This time all I could come up with was what I started with: this is not what I do. They were amazing businesspeople in a large market whose product addresses a demonstrated customer need. But I don’t look for amazing businesspeople in large markets whose products have a demonstrated customer need.

Venture capitalists will love this company: they will shower them with money so the company can spend years grinding through a recapitulation of what already exists so they can marginally displace a major incumbent and scrape a few hundred million dollars from the billions the incumbent sees. This will be enough, and the founders will be rich and the VCs will be successful and the world will spin on as before. This is venture capital at its best as practiced today. Read about the companies being funded every day by venture capitalists and tell me this isn’t true. I used to think that what I did was venture capital. But maybe my idea of venture capital was just wishful thinking, a vision of some golden age that never really existed. I don’t care about business acumen, I don’t care about proven markets, I don’t care about making a ton of money. I don’t. I don’t think I rise to the level of professional investor, someone who takes their fiduciary duty to maximize risk-adjusted returns seriously. I’m not sure I’m even really a venture capitalist at all.

So I told the company that I was no longer a venture capitalist, that I had retired. And I suppose this is a lie too, because you can’t quit something you never were. But when I wrote it I felt how a boiling frog who’s jumped out of the pot must feel. Relief to no longer have to think about myself as a venture capitalist, to try to shoehorn what I want to do into what I am supposed to do.

In the next couple of weeks I will be investing in a company I’m really excited about. A couple of post-docs with an elegant technology for a small market that might be made large by it. No customer has asked for this, because no customer knows it’s possible. This company is neither risky nor crazy. It probably will fail, and if it fails it will fail quietly. But if it works, the world will be different. This is the kind of thing I want to invest in. I once thought this was venture capital, now I’m not sure what to call it.