Top 10 Lessons Learned from 10 Years in Venture

by David Goldberg in VC Unpacked

August 19, 2024

10 Years. 100 Investments. 3 IPOs. 4 funds, $200M+ raised. 15,000 deals seen. Many, many cups of coffee.  It has been, and continues to be, the journey of my life. I am continually challenged and inspired, and am hopefully able to do some good in the ecosystem that has allowed me to follow my dreams and enable others.

It has come with highs and lows, a cast of characters that would make for hit reality show on Bravo, and perhaps most importantly, experiences and lessons that have been integral in shaping my views as an investor, and as a human.

As I have learned from so many in the industry (whether they know it or not), this is my attempt to pay it forward, and share.

My Top 10 Lessons Learned from 10 Years in Venture

On Investing

1. If Real Estate is all about Location, Location, Location, venture investing is all about People, People, People. It’s easy to say, but harder in practice, as it’s difficult to ignore the what (product) that is being pitched. But startup success takes 5-10 years and hundreds if not thousands of people. Ideas are rarely unique, so ultimately, the leaders of the business are the key differentiator. We all know the famous pivot examples like Slack (started as a gaming tool called Tiny Speck) and Instagram (started as a check-in app called Burbn). Our own portfolio’s biggest success, Compass, started and was funded on a completely different angle on the real estate world. Bet on the smartest and most inspiring people in the world, and you’ll likely do well.

2. Great investors come in all shapes, sizes, and flavors. At Alpaca, all four General Partners have an entrepreneurial/operator background. It serves us well and gives us a unique ability to speak a founder’s language, show empathy with their journey, and ideally help in getting the company from zero to one. But after working with hundreds of investors on deals or inside companies, we have seen that good (and bad) investors come from everywhere: tier 1 firms to super angels, generalists and specialists, former founders, engineers, lawyers, career investors, and everything in between. I now try to avoid making assumptions, and aim to get to know individuals on a personal level.

3. Venture Math and Power Laws are real and rarely defied. I’ve read every debate and have argued on both sides at one point. But the data, and my experience, cannot be ignored. Ownership matters. Fund size matters. I can count on one hand the number of 3x early stage funds that got there without a true outlier exit. You cannot ‘hit singles and doubles’ and reliably build enough exit value for a diverse portfolio. Which bring me to…

4. Consider ‘Outlier Potential’ more than ‘Risks of Failure’ when underwriting an early stage investment.  It’s easy to write off big ideas for the reasons they will be difficult. But if outlier returns are needed, corresponding big risk needs to be taken. Instead of asking ‘why may this fail,’ ask ‘what needs to happen for this to be successful’ as well as ‘if successful, are we talking big, or gigantic, outcome?’ This is also where certain markets and business models come into play, including winner-take-all markets, network effects, and recurring revenue. However…

5. Valuations matter…to a degree. Higher valuations just mean higher exits necessary to get that meaningful outcome. This is especially true for smaller funds who do not have the deep pockets to buy up additional ownership (or even defend) after the Series A or B. But on the other hand, having high ownership of a failure, or even of a company with a mediocre (7 figure) exit will not have significance. So I wouldn’t lose a deal over a valuation 10-30% higher than what is ‘fair’ (whatever that even means), but once you get into obnoxious territory, be mindful of the consequences.

6. Access is the most important component of the VC cycle (Access – Picking – Value Add). Note I throw ‘winning’ into access…one needs to see – and actually have the ability to invest in – a deal. This is another one of those hotly debated topics inside GP/LP circles, but the more I do this and learn, the more I believe that it is the pool of deals you see (and seeing them early) that truly matters. The picking is important, but unreliable.

7. Be specific and intentional in your strategy, and align your brand and processes to this. This pertains to a firm, but also to each individual investor at a firm. Things were different when I was an entrepreneur in 2010, and even when I started investing in 2014. There were (way) less VCs, especially outside of Silicon Valley (we were NYC-based), and less opportunity for marketing and content. You could be smart, hardworking, and well-networked, and that could generally lead to success. Now competition has gotten fierce, and founders have the leverage to pick from a variety of smart, hard-working, well-networked investors. So it’s key to have an edge – whether that’s expertise, a unique value-add network, or a repeatable process. Repeat it. Master it. Then use it as a weapon.

8. Be mindful not to overvalue early traction – at a minimum understand what it proves – and what it does not necessarily prove. Over 100 investments, we have not actually seen material correlation between strong early traction and outlier outcomes. Companies with no traction do have a higher rate of quicker failure, but as mentioned above, that actually is not that important.

On Building a Firm

9. Investing and Fundraising are very different skillsets. This is true for founders as well as GPs. There is a skill, and an art, to storytelling and inspiring, as well as the actual process of running an efficient raise. It is part innate, part learned. Appreciate the importance of this and prepare accordingly. Leverage resources (and your peers), practice, and try not to go at it alone.

10. Do the right thing. It is a bit cliché, but investing is a long-term game that lives in a bubble. How we treat each other (founders and investors alike), in both good times and bad, will have a make-or-break effect on our reputation, and thus dealflow. Be honest, be respectful, don’t ghost anyone, be empathetic, think long-term. When all else fails, just go back to the Golden Rule.