Investors should be judged on choices they could have made

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 51:21

   you who do you put in those roles um historically we had a history our old model was basically we only hire gps uh we don't we were not developing and we could go through why that was the case we changed that like eight years ago we now develop our own gps um that we've evolved to where i think that's that's working quite well um i think the answer to your question is it's a two-part question is there's some level of just objective you know are they are they are they are they good are they good at doing the job yeah here's a big thing we focus on when we evaluate them which is um you know it's fine to invest in a category like five years early or like whatever something goes wrong like that's fine what's not fine is you invest in the wrong company and you could have invested in the right company yeah like at the moment you

2. 52:00

   made the investment, you could, you made the wrong decision in that moment of which one you should invest in and you could have known. And so it's like, did you do the work to fully address the market? How do you handle the fact that like, you don't know that until like six years later, and now you're going back and you're like, Hey, you made this mistake six years ago. This isn't going to work out now. So it's generally, so that is a giant problem. And I would say that when we started, actually, when we talked to our friends in the business, what they said basically was they said, number one, you don't know if somebody is a good GP for 10 years because you don't have the return data. And then they said, number two is nobody ever wants to admit that they made a mistake and so they never actually fire anybody yeah um so what they do is they just

3. 52:32

   keep them on the masthead and they just kind of gently like you know retire them out but they they sit and pollute uh one of the guys running one of the big firms 20 15 years ago told me his he said they hired a partner is that they had a partner soldered firms they hired a partner in 1984 um who was like a big deal at the time in the industry and you know the lps were very fired up about it and he said he then proceeded to just like nearly ruin the firm over the next 20 years that's crazy because he said he wanted he said all of his investments were bad but then it was even worse that he talked him out of all the other good investments they could have made and he said we couldn't get him out you know the reputational damage was too great so so this is a long run and then by the way a lot of these firms are partnerships yeah the problem of the partnership

4. 53:05

   is partnership sounds good yeah the problem is you end up with lots of internal dissension and then you you can't make decisions yeah so this is a big issue um i guess what i would say is like for example the thing i talked about it's just like it's it's it's not a it's it's a it's a what i just described as a process issue not an outcome issue right which is like are you doing the work. It's an actual job. Are you doing the work? If you're not doing the work, it's relatively clear you're not doing the work. And you're probably not doing the work, not just on one thing. So you do try to really look at the inputs. Oh, yeah, very much so. We evaluate the inputs just as much as the outputs. What do you do as an investor? I'm sure you've had this at some point where the inputs are not particularly good. They hit this one outlier thing. The outputs are

5. 53:45

   objectively now good. And so you're looking at that situation or the inverse. So this is the other part of it. The other part of it is I think there's just a subjective criteria for venture which is just are you good at it yeah and like do you have taste yeah which is unquantifiable this is one of the nice things about your model too where like you somebody gets to make a call versus in these partnerships i think it would be very hard when nobody gets to make calls like this because at some point someone has to just like make a determination on this stuff yeah that's right and then even you know and even who even made the call you know gets gets lost um yeah so so so i think there's a taste thing and then look i think there's also just like a there's like a network cohort branding thing which is these startups come in waves and it's not just new

6. 54:24

   technology it's also new people um and they you know they're the new these new scenes form and like are you in the scene or not right and if you're not in the scene like yeah i can't fix that for you there's also a ton of path dependence it seems like where like you make an investment that gets you in the scene now other founders want to work with you because you invested in this really cool company right and then it just snowballs and you're like well i can't go back and you know change history and get you into the snowball yeah yeah like and again this is what Again, I would call this, this is the test for the capital T.

7. 54:50

   So there's just different versions of the complaint, right? So you brought up the one of the founder who's like, well, I could have done this, but I was in a position to do it.