gfcmills on entrepreneurship

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Investing in early-stage companies

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About six months ago I started working for a venture capital firm focused on investing in early-stage technology companies. This comes after a few years of noodling around with my own startup ideas.

I’m new to investing, I’m learning a lot, and I’m trying to formulate a view on how to identify the best investments for our firm.

This is not an exact science. However, there are people who have been very successful venture capitalists, consistently outperforming the rest of the industry (which performs badly as a whole). It’s my ambition to tease out what makes those investors successful, and learn from it. I’m doing this publicly for two reasons:

I’m looking for any and all feedback as I go, I think the guidance of interested readers will help me find the really important questions to try and answer.
I’m certain that exploring these questions will be meaningful to me in the early stages of my career, and I really hope that they will be meaningful to someone else too. I want to maximise the chances of that other person reading them.

There are several topics that I think would be interesting to explore. For each one, I’ll use the form that best suits the topic – it could be a short post, a video interview, or an essay. My aim is not to teach (I don’t know enough), but to find out as much as I can, and publish what comes out.

Here’s my list of topics:

  • Thematic investing and diversification – What are the advantages and disadvantages of thematic investing? What is the interplay between theme selection and portfolio risk?
  • Fund size – What are the maximum and minimum sizes for a successful fund? Are there ranges that just don’t work? Which investment styles suit which fund sizes?
  • Picking winners/effective filters – How can the VC decision making process be mapped out? Is the decision making process consistent for all successful VCs? Does the decision making process for successful VCs differ from the process used at VC firms in general?
  • Competitive advantage – What gives one firm/partner a competitive advantage over another? Brand name? Domain expertise? Pipeline? Rights?
  • Location and networks – How does proximity (both geographically, and degrees of separation) affect access to deals, and thereafter the performance of investments?
  • Investor rights – Which investor rights actually matter? How much difference do they make to portfolio performance as a whole?
  • Time horizon – Do successful investors consistently find “quick flips” or look for long term investments? Do fund structures and timings have adverse effects on performance?
  • What’s the difference between smart money and dumb money? What do the best entrepreneurs really want from investors (besides their money)? How much value does that really add?

I won’t be posting often (experience has taught me that it doesn’t come naturally), but I will be spending a decent amount of time on each one of these topics, so if there is one in particular that you’d find interesting or one that you’ve thought about yourself I’d be really interested to hear from you. You can get hold of me on Twitter @gfcmills.

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Written by gfcmills

June 4, 2012 at 3:30 pm

One Response

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  1. I’m looking forward to following this series George.

    Another topic you might investigate is the impact of the macro-economic climate on VC investing and the two possible investment approaches: market timing vs cost averaging.

    Ie – is it possible or desirable for VCs to time market cycles and invest more at times when equity prices are depressed and less when they are expensive? Or is it better just to invest steadily “whatever the weather”?

    Greg Carter

    June 11, 2012 at 2:43 pm


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