The Generalist - How to Find a Unicorn
🌟 Hey there! This is a subscriber-only edition of our premium newsletter designed to make you a better investor, founder, and technologist. Members get access to the strategies, tactics, and wisdom of exceptional investors and founders. Become a member today. Friends, Welcome to the latest edition of The Investors Guide – a new Generalist series exploring the essential challenges of raising, running, and succeeding as a venture capitalist. We do that by conducting detailed interviews with some of the world’s best established and insurgent investors, and compiling their advice, tactics, and strategies into an actionable guide. It was fantastic to learn how many of you enjoyed the first edition and hear the stories behind your funds. I hope you’ll find today’s guide just as valuable, if not more so. I loved how investor and Generalist subscriber Sajith Pai summarized the value of The Investors Guide series: “Up until now, info / content like this could only be unlocked via 1:1 convos (and only for privileged insiders).” Using Sajith’s framing, I can comfortably say that today’s edition, “How to Find a Unicorn,” is the equivalent of at least 20 coffee meetings – compressed into an 11,500-word guide. This guide is the result of dozens of hours of interviewing, research, and writing. Below, you’ll find a detailed discussion of the inbound and outbound strategies global investors use to find legendary startups. Throughout their careers, this group (or the firms they run) have backed many of the most consequential companies across the asset class including Nubank, Jet, Coupang, Runway, Faire, Kavak, Lyft, Stone, Canva, Peak Games, Chime, Ledger, Cockroach DB, Upstart, The Graph, Coinbase, Dataiku, Circle, Zoox, The Farmer’s Dog, ClassDojo, and Kraken. Cumulatively, they have assessed tens of thousands of companies, spoken to countless entrepreneurs, and identified some of the best to back. Though all run elite, well-regarded firms today, none started with the benefit of a historic brand name. Rather than relying on their firm’s reputation, these investors have won through savvy, intelligence, intense hustle, and a little bit of luck. To access all of their wisdom, subscribe as a premium member today: By doing so, you’ll ensure you receive the entirety of The Investors Guide’s ten editions. Here’s what we’ll be covering:
You won’t want to miss it: Brought to you by MercuryIf only discovering your next investment opportunity was as easy as checking your inbox. Well, now it is. Investor Connect by Mercury Raise is a data-powered platform that puts ambitious founders in front of active investors like you. It’s simple: Join the investor pool, submit your investment criteria, and receive a fresh, curated drop of top startups vetted by a panel of VCs each month. Then, get connected with a single click. How to Find a UnicornFirms live and die on the deals they find. It is perfectly possible to raise a fund from LPs, spend four years sourcing opportunities, meeting with founders, diligencing diligently, and writing checks without ever encountering a true unicorn. Without meeting the kind of reality-bending founder capable of building a generational business. A shrewd manager may be able to salvage such a vintage. You could land some base hits, secure some savvy secondary sales, and minimize losses. All of these can stanch the bleeding, but they are not the basis for eyebrow-raising DPI. Nor are they the basis for the establishment of a new franchise. All of which is to say that if you don’t see great companies, you cannot build a great fund. It really is that simple and that difficult. Valor
While the crowd jostles for space along the shoreline, casting their lines in the same direction, you may find opportunity standing alone among the reeds, using a fly you have fashioned yourself. Whatever your strategy, however you choose to play the game, the imperative is the same: you must find your unicorn. What do we mean by a “unicorn?” It deserves some clarification. The term typically denotes a startup valued at or above $1 billion. However, too many companies have achieved billion-dollar status over the past few years based on little more than market exuberance. We’re using the word a little differently here, in a manner truer to its initial spirit. A unicorn is simply that company. The startup on the far right tail, a skewer of returns – a fund returner and reputation-maker. The advice below reflects how to find these rarest of startups. Here’s what we’ll cover:
Thank you to Ann Miura-Ko (Floodgate), Scott Sobel (Valor), Kanyi Maqubela (Kindred), Kirsten Green (Forerunner), Ben Sun (Primary), Nikhil Basu Trivedi (Footwork), Matt Turck (FirstMark), Niki Scevak (Blackbird), Firat Ileri (Hummingbird), Hernan Kazah (Kaszek), Michael Dempsey (Compound), and Nathan Benaich (Air Street) for sharing their insights for this issue of the Investors Guide series. Step 1: Know your gameAn effective sourcing strategy begins by knowing the game you’re playing. That starts with two fundamental tasks:
Understand your fund’s positionBegin by understanding your fund’s position in the broader venture landscape. Those who are running a fund of their own should have deeply considered this question as part of the founding process, but to paraphrase the Prussian commander Helmuth von Moltke, “no plan survives contact with the market.” As you look for founders, hear pitches, and describe your value-add, you’ll quickly learn which parts of your product resonate and which do not. Those joining an existing franchise will likely go through a similar process. You may have learned all about your new employer, but it will take experience on the ground to understand its nuances. Michael Dempsey of Compound and Firat Ileri of Hummingbird highlighted how sourcing strategies will likely vary depending on where you’re situated. Compound
Hummingbird
How strong is your fund’s brand equity? What deals does it see first and why? Are there sectors where it seems to spike? How would other investors describe it? Are you in the 1% or the 99%? The answers to these questions, and others like them, may radically impact your approach to sourcing. Know your strengths and limitationsIt is as important to understand your personal skill set. What are your unique weapons? Who are you a magnet for? What experiences or abilities do you have that are rare and valuable? Who are your allies in the ecosystem? It was thanks to Hernan Kazah’s experience building e-commerce giant Mercado Libre that his fund, Kaszek, found its first unicorn. Kaszek
Use an understanding of your strengths to focus your work. Insurgent managers have dozens of competing priorities, as Forerunner’s Kirsten Green explains: Forerunner
Floodgate’s Ann Miura-Ko recommends considering your weaknesses. What are your failure modes? Where do your worst decisions seem to stem from? What is your “circle of incompetence?” It may take time for these to reveal themselves, but paying attention early could benefit future reflection. Floodgate
Step 2: Know what you’re looking forAccording to a Crunchbase report, VCs participated in over 28,000 rounds in 2023. Naturally, this figure doesn’t include the thousands of startups that did not raise capital. No manager can hope to diligence that many opportunities. If you want to find a unicorn, you have to pick your spots. That begins with knowing yourself, but it’s just as important to understand the kind of deal you’re looking for. Investors cited three tactics worth considering:
Build an investment profileTo start, decide what you think your type of investment looks like. ... Subscribe to The Generalist to read the rest.Become a paying subscriber of The Generalist to get access to this post and other subscriber-only content. A subscription gets you:
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