Bear Necessities

A new generation of venture capitalists experienced their first market crash. Those who survive can become better investors.

I spent time last week with a group of over 100 venture capitalists in Los Angeles.

The attendees were mostly “mid career” investors who are rising stars at large funds, paired with emerging managers who aspire to create their own venture capital franchises.

There was a sense of camaraderie in the room. Over the past two years, most had experienced an industry meltdown together for the first time in their careers.

There is a longer and more articulate article about why venture capital was bloated and how every stage of the capital stack became frothy, but that has been written a thousand times.

So that is not what I want to write.

What I want to say, and the sentiment that I kept hearing last week was that: if investors make it to the other side of this bear market, they will be better capital allocators for the rest of their careers, so long as they internalize the emotions they’re feeling today.

There are two parts of that statement which are worth double clicking on.

1. If investors make it to the other side of this bear market, they will be better capital allocators for the rest of their careers, so they as they internalize the emotions they’re feeling today.
   
   This is a conditional statement because there will be investors who do not make it to the other side of this bear market. This might happen for a variety of reasons.

   
   Investors might find more productive and lucrative uses of their times. Yes, I said that correctly, there are likely easier ways to make money than being a VC.
   
   Being a venture capitalist is a long journey to liquidity via carry dollars (where you make life changing money) and most emerging VC’s are still searching for a career defining investment.
   
   So what could you do with your time instead of being a VC?
   
   You might start a business, join a hedge fund with a faster expected payout, acquire an HVAC company (the meme is real), go back to operating, or simply not raise your next fund.
   
   And all of those options are okay.
   
   There are many ways to make money and careers fly by faster than you think, so why stick around to save face with peers?
   
   The older you get, the more you realize that industry memories are short and if you make a big life decision such as pivoting your career, few people will notice or care.
   
   I don’t say this to be depressing, it’s just the truth. Do something else with your time that you’re more excited about if you are feeling uninspired or have low confidence in your fund strategy.
   
   But, if you love this industry, and you love the grind of investing, and you love helping founders achieve greatness - you can make it to the other side.
   
   And if you internalize this moment in a positive way, you can become a better capital allocator for the rest of your career.
   
   Which brings us to the second part of the statement.

   
   

2. If investors make it to the other side of this bear market, they will be better capital allocators for the rest of their careers, so they as they internalize the emotions they’re feeling today.
   
   Yes, it is possible to become a better investor. This isn’t a job where you wake up and become the next Doug Leone. I’ve seen people try.
   
   When I speak to venture capitalists entering the industry, I want to tell them all the weird stories I have after making almost 150 investments.
   
   They will eventually earn their own stories, and the only way to get better in this business is to make mistakes.

   
   But you have to internalize the emotions that you’re feeling today, otherwise those mistakes will go to waste and you will likely repeat your errors in the next bull market, with all its fomo and temptations.

   

   
   If you feel embarrassed about investment decisions, let yourself feel embarrassed.
   
   If you passed on a deal that would have changed your career forever, read the investment memo that you wrote and figure out why you said no — and what question you could have asked to say yes.
   
   Whatever mistakes you made, internalize them now and promise yourself that you will never forget the feelings that you are feeling.
   
   Bear markets are a moment for learning, so figure out what the fuck you’ve actually learned.

Being an investor and getting paid to do this job for a living is a privilege.

You have to enjoy waking up to painful news and realize that surviving and thriving during a bear market is why you get paid.

Otherwise, go acquire an HVAC business.

That could be a fun way to make money and few of your peers will notice or care. Those who do will be happy for you.

C’est la vie, make it to the other side.