Ask a fund manager what their strategy is and there’s a good chance they describe the best investment they did 3-5 years ago. This can work for any asset class.
Strategy derived from experience can work very well…until it stops working.1
That said, one theme that’s emerged from our experience in seed stage investing is a preference for founders who specialize in execution over founders who specialize in storytelling.
This tweet frames the issue well:
At the seed stage, charm can go a long way with many VCs. But in my experience - having invested in plenty of charmers in my first years of angel investing and, subsequently, observing many more - the correlation between great seed-stage storytelling and great startup outcomes is weak.2
I find that the founders who are great at execution and not at storytelling will learn storytelling over time. But founders who are great at storytelling and not at execution will not learn execution.
By a startup’s Series B round, a founder’s execution and storytelling abilities will have converged.3 I’d bet on the ones who start out with high grades in the former, not the latter. If a founder is established as wonderful at execution by the B round, the likelihood of a great outcome is considerable.
Now, in a market climate where fundraising can be particularly challenging, many in the Startup-Advice-Giving-Complex will stress the importance of storytelling. The best seed stage founders will likely not hear this advice, being too busy with execution.
My hunch is that VC algorithms for 2022 and beyond will be best-served by tossing 2021 data out of the model.
On the other hand, founders who can “charm” great engineers are much more likely to be execution maniacs. Of course, great engineers aren’t swayed by “charm” in the conventional sense. They are swayed by substance. This highlights another aspect of the storytelling vs execution enigma: shouldn’t seed stage founder storytelling ability be judged by engineers, not VCs?
Great late-stage startups invariably have a great story, making the CEO seem like a great storyteller - hence the endemic hindsight bias that these great late-stage storytellers started out that way.