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Investing

5 things Main Sequence’s Phil Morle learnt about venture capital from hanging out with 100 other investors

- August 29, 2023 4 MIN READ
Dog, money, nurture
Photo: AdobeStock
Venture capital can be a solo, transactional game: meeting founders, building conviction, and making a case to an investment committee before allocating capital.

Some firms learn how to exploit the aggregated super-power of their whole group to discover unique investments and unlock value.

What we don’t talk about enough is how the firms themselves collaborate to understand each other as a system to build our industry from different perspectives deliberately.

About 120 VCs from Australia and New Zealand just gathered for two days in Queenstown, NZ to work on ourselves at an event called Venture Downunder. It was convened by the legendary Innovation Bay, a group that has quietly and selflessly nurtured our community for 20 years.

We were asked: “What happens here at Venture Downunder, and what role does Innovation Bay play in facilitating it? Here’s what I am thinking about on the flight home.

#1 — There is no single way of venturing

The venture business is loaded with mantras and dogmas, but it is quickly apparent when we talk about our work that we all do it differently. Not ‘better’ or ‘worse’, but each of us evolves our approaches to better suit our own purpose in the overall system. Investing early and later is different. SaaS is different to deep tech. I asked a few people — “What is a typical day like at your firm?” and was quite surprised at how different it could be.

Some people optimise for triaging massive pipelines and finding the best needle in a haystack. Others find an idea and build an opportunity around people. Some firms need to spend lots of time hands-on inside portfolio companies; others need to optimise a light touch after investment. There were many variations. We can learn which forms are optimised for different system parts and maximise how the whole thing comes together.

How can we celebrate and learn from each other’s different approaches in a more systematic way?

#2 — We’re as siloed as any other part of the ecosystem

We like to think of ourselves as a very modern, collaborative model for value creation, but we are still operating in our own siloes. Competing even.

How might we collaborate better? If I ‘beat you’ to a deal, is that the best outcome for that company and, ultimately, my portfolio? If I keep my part of the community a secret, am I more likely to succeed? If I don’t spend the time to leave my own world, can I ever increase my advantage?

#3 — Vulnerability is where the step changes come from

Investors prefer to be the smartest person in the room and don’t like to admit failure. At least, I don’t hear much of a different conversation, and I am an investor.

But this work is damn hard. At VDU, I heard stories of the anxiety people feel as they ‘spin the plates’ of their portfolios of fragile young companies that they nurture. The struggle of supporting founders as they grow their impossible companies in a market that resists their growth and requires them to learn faster than they run might out of capability.

Just like founders in portfolio companies, VCs get better when they expose their failures and fears.

First — It brings the confidence that this is, in fact, the normal state. Not the hubris of silicon valley Twitter. It is damn hard, and we fail more than we succeed. That’s its nature. The best venture is super risky, and likely to fail, and our job is to resist it at every stage — hopefully making it through the valleys of death to success.

Second — given that the work is a process of de-risking hyper-risky opportunities, the secrets of the craft lie in understanding where failures happen and what the work is around them. We need to share that.

I remember Hunter Walk once asked us why we don’t share failure retros more. As well as all the “Proud to announce my fabulous company’s new milestone” posts, we need more “Here’s why a company I had massive conviction about when I invested failed and what I learned.”

#4 — In the right forum, we can make the venture industry stronger through proactive design

Many of us remember when there was no venture industry in Australia. Investors didn’t believe in it. Now we have one, and it is growing. We’re doing alright, and we’ve started to return capital to investors.

But we are like a collection of startups in a portfolio that’s called The AU/NZ Venture Industry. Our practice is nascent, and we’re still figuring it out. All the pieces of the puzzle aren’t there yet, and some firms get to those missing pieces sooner. How do we expose these discoveries as we find them? When we can see missing pieces, how do we expose them to the community s that we can all chase the solution?

It’s on us to keep building this with half an eye on making each other successful.

What’s the work it takes to do this? I love the idea of going away once per year to concentrate on this question.

#5 — All this is why we need to properly value groups like Innovation Bay

We all know that it is impossible to make a world-class wine by planting a new vine in a pot and making wine in a couple of years. The best wine comes from vines that have been nurtured for decades, grown in a soil that millennia of natural forces have enrichened.

There is a science to winemaking that is harder to see in community building, but the principles of time and care are shared. Innovation Bay is 20 years old and has been nurturing this community daily in that time. It would have been an easy mistake for them to make to ‘factory farm’ us and destroy the value. But this is a small, nurtured plot of vines tended to by craftspeople that care about the finished product.

What do we do next to take this to the next level?

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