When expanding a fund's investment thesis, avoid making multiple changes simultaneously, such as moving from venture to growth stage AND from software to hardware. Making more than one 'leap' at a time dramatically increases risk and magnifies blind spots. Instead, change one variable at a time, like moving to a later stage within a familiar sector, to manage risk effectively.
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To de-risk innovation, teams must avoid the trap of building easy foundational parts (the "pedestal") first. Drawing on Alphabet X's model, they should instead tackle the hardest, most uncertain challenge (the "monkey"). If the core problem is unsolvable, the pedestal is worthless.
Conventional wisdom to 'stay focused' is flawed. Breakthrough growth often comes from making many small, exploratory bets. YipitData's success wasn't from perfecting one thing, but from the one small, tangential bet each year that drove 90% of the growth while others failed.
True investment courage isn't just writing the first check; it's being willing to invest again in a category after a previous investment failed. Many investors become biased and write off entire sectors after a single bad experience, but enduring VCs understand that timing and team make all the difference.
New private equity managers often define their strategy too broadly. The winning approach is to first dominate a narrow swim lane, like 'buy-and-builds of blue collar services,' to build credibility. They can then earn the right to expand into adjacent markets in later funds.
The primary risk to a VC fund's performance isn't its absolute size but rather a dramatic increase (e.g., doubling) from one fund to the next. This forces firms to change their strategy and write larger checks than their conviction muscle is built for.
A common mistake in venture capital is investing too early based on founder pedigree or gut feel, which is akin to 'shooting in the dark'. A more disciplined private equity approach waits for companies to establish repeatable, business-driven key performance metrics before committing capital, reducing portfolio variance.
Resist the common trend of chasing popular deals. Instead, invest years in deeply understanding a specific, narrow sector. This specialized expertise allows you to make smarter investment decisions, add unique value to companies, and potentially secure better deal pricing when opportunities eventually arise.
David Cohen predicts that in a decade, the view of venture as a risky, "go big or go home" art form will be obsolete. As the asset class matures, it will inevitably adopt principles from public markets, like diversification and index-fund-like strategies. Venture will become more of a science, making it more stable and systematic.
The hardest transition from entrepreneur to investor is curbing the instinct to solve problems and imagine "what could be." The best venture deals aren't about fixing a company but finding teams already on a trajectory to succeed, then helping change the slope of that success line on the margin.
The increased volatility and shorter defensibility windows in the AI era challenge traditional VC portfolio construction. The logical response to this heightened risk is greater diversification. This implies that early-stage funds may need to be larger to support more investments or write smaller checks into more companies.
