During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).

Underperforming VC firms persist because the 7-10+ year feedback loop for returns allows them to raise multiple funds before performance is clear. Additionally, most LPs struggle to distinguish between a manager's true investment skill and market-driven luck.

Top growth investors deliberately allocate more of their diligence effort to understanding and underwriting massive upside scenarios (10x+ returns) rather than concentrating on mitigating potential downside. The power-law nature of venture returns makes this a rational focus for generating exceptional performance.

To avoid stifling talent, Sequoia uses 'freedom within frameworks.' It provides guiding principles—shared values and a common value chain (sourcing, picking, winning)—but allows partners total autonomy in their methods. This enables diverse, authentic styles, from deep thematic work to high-volume networking, to coexist effectively.

Acknowledging venture capital's power-law returns makes winner-picking nearly impossible. Vested's quantitative model doesn't try. Instead, it identifies the top quintile of all startups to create a high-potential "pond." The strategy is then to achieve broad diversification within this pre-qualified group, ensuring they capture the eventual outliers.

Venture capital returns materialize over a decade, making short-term outputs like markups unreliable 'mirages.' Sequoia instead measures partners on tangible inputs. They are reviewed semi-annually on the quality of their decision-making process (e.g., investment memos) and their adherence to core team values, not on premature financial metrics.

Greylock measures partner contribution by whether they were "causally impactful" to a successful investment, rather than just who sourced it. This model incentivizes deep collaboration, such as building a prepared mind, helping win a deal, or adding critical value post-investment.

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.

Unlike committees, where partners might "sell" each other on a deal, a single decision-maker model tests true conviction. If a General Partner proceeds with an investment despite negative feedback from the partnership, it demonstrates their unwavering belief, leading to more intellectually honest decisions.