This piece is part of my intro to VC series. I wrote these short essays as a way to accelerate my learning and make this opaque world more transparent.
How you source as an early-stage investor defines the quality of your outcomes.
Most VCs build the top of the funnel using one or two of these techniques. Here I want to give a complete overview and point out what’s great about each of these, what’s not, and how to improve.
The best companies often come from the edge of your network, mainly from founders or from other VCs, passing on deals that are unfit for their thesis or that they ended up not doing.
Pro: Your network shows you companies with a high signal to noise ratio. They have been vetted, and you know they will fall within your investment scope.
Con: This technique is the main driver of VC groupthink, FOMO, and difficulty to integrate what’s new or different. It sometimes feels everyone is looking at the same thing - it’s not for a lack of variety among founders or ideas, but rather because of the great filter this approach entails.
Tips: As an investor, you want a close group of friends i.e. people you trust and with whom you can liberally share ideas, tips and companies. Beyond that, be generous with your network, and connect people who might benefit from it.
VCs seem to have become marketing powerhouses. They want to be top of mind for founders about to raise money and have the most proactive one reach out.
Pro: Inbound is great because it’s surprising. Founders come with novel and interesting ideas, markets, business models which we would have never thought of or looked for.
Con: Low signal to noise ratio. There is a staggering number of companies looking for money at all time, making handling inbound a labour-intensive task.
Tips: Develop a habit of responding quickly to founders. You think inbound is laborious, try fundraising. Founders are the real heroes there.
Some investors think deeply about technology, society, the future, and come up with clear investment hypotheses and types of companies they look for. These funds usually source with the two above techniques, but also scan the horizon to find new founders with brilliant approaches.
Pro: Can lead to champions-league investing (in my book, well thought binary bets that advance technology and lead to outsized outcomes), rather than FOMO investing in the 1000th to-do-list app. It shows clear thinking and a hustle mindset.
Con: Extremely low signal to noise ratio, and you need to be very good to find the right sources of information. Usually, when something is publicly available, it’s already too late.
Tips: Break down the workflow in separate chunks of time. First go through the list of companies you’ve found (bookmark them, e.g. using Pocket), just looking at their descriptions - at best their website. Only clicks, no research. Then, go through them and score them + start sorting them (passing, more reference needed, interesting).
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This piece is part of my intro to VC series. I wrote these short essays as a way to accelerate my learning and make this opaque world more transparent.
How you source as an early-stage investor defines the quality of your outcomes.
Most VCs build the top of the funnel using one or two of these techniques. Here I want to give a complete overview and point out what’s great about each of these, what’s not, and how to improve.
The best companies often come from the edge of your network, mainly from founders or from other VCs, passing on deals that are unfit for their thesis or that they ended up not doing.
Pro: Your network shows you companies with a high signal to noise ratio. They have been vetted, and you know they will fall within your investment scope.
Con: This technique is the main driver of VC groupthink, FOMO, and difficulty to integrate what’s new or different. It sometimes feels everyone is looking at the same thing - it’s not for a lack of variety among founders or ideas, but rather because of the great filter this approach entails.
Tips: As an investor, you want a close group of friends i.e. people you trust and with whom you can liberally share ideas, tips and companies. Beyond that, be generous with your network, and connect people who might benefit from it.
VCs seem to have become marketing powerhouses. They want to be top of mind for founders about to raise money and have the most proactive one reach out.
Pro: Inbound is great because it’s surprising. Founders come with novel and interesting ideas, markets, business models which we would have never thought of or looked for.
Con: Low signal to noise ratio. There is a staggering number of companies looking for money at all time, making handling inbound a labour-intensive task.
Tips: Develop a habit of responding quickly to founders. You think inbound is laborious, try fundraising. Founders are the real heroes there.
Some investors think deeply about technology, society, the future, and come up with clear investment hypotheses and types of companies they look for. These funds usually source with the two above techniques, but also scan the horizon to find new founders with brilliant approaches.
Pro: Can lead to champions-league investing (in my book, well thought binary bets that advance technology and lead to outsized outcomes), rather than FOMO investing in the 1000th to-do-list app. It shows clear thinking and a hustle mindset.
Con: Extremely low signal to noise ratio, and you need to be very good to find the right sources of information. Usually, when something is publicly available, it’s already too late.
Tips: Break down the workflow in separate chunks of time. First go through the list of companies you’ve found (bookmark them, e.g. using Pocket), just looking at their descriptions - at best their website. Only clicks, no research. Then, go through them and score them + start sorting them (passing, more reference needed, interesting).
Luc(re)Building the Modern Finance Stack
Authors: Luc de Leyritz & Sam Cash, originally posted here We believe there’s a meaningful opportunity for large scale businesses to be created in the B2B fintech space by a) streamlining time-consuming workflows which are currently performed manually by the finance team and b) increasing the penetration of these tools in the European SMB market. There are about 23m SMBs in Europe, all of whom have to manage their finances. However, most don’t use specialised software. Accounting software is ...
LucThe question that can 10x your thinking and writing
Our instincts are often right. After 15 days of somewhat consecutive publishing, I realized my fears of writing poor essays were well-founded. I thought my essays would be irrelevant, uninsightful, and boring. It turns they are, like most things written online because I failed to ask myself the most important question. So what? The problem with our writing is that it often does not resonate with the people who read it, it often does not offer any insightful take because we did not dig deep en...
LucThis principle from probabilistic thinking will make you a great early-stage investor
The main lesson you can take from the literature on cognitive biases is that our brains evolved in ways that can be harmful to us. The desire to be right, or aversion to loss, is one of these powerful biases that probably originated in situations like hunting in abundant, but also lion-infested regions, which meant painful death. As with most cognitive biases, it ported pretty poorly to situations where being wrong leads to losing some money or not getting retweeted, while being right exposes...
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