Value investors often anchor to their initial purchase price and hesitate to buy more as a stock rises. The VC approach is to add to winners as their thesis is validated, recognizing that a compounding business will likely never be as cheap as the initial entry point again.
Instead of making emotional decisions, establish "kill criteria" for each investment: a specific KPI (a state) that must be met by a certain time (a date). If the company fails to meet the predefined metric, you sell. This provides a disciplined, objective framework for portfolio management.
In both VC and public markets, the most sought-after deals are often overpriced. Significant alpha can be found in companies ignored by the mainstream, like the company XPEL, which had to list on a Canadian venture exchange because US VCs passed on it and became a 500-bagger.
Money is not created, but recycled. When a sector like AI becomes hot, capital flows out of previously favored sectors like SaaS. This creates opportunities for contrarian investors to buy high-quality but now unpopular businesses at depressed prices before the cycle turns again.
While many investors focus on annualized returns (CAGR), VCs prioritize the Multiple on Invested Capital (MOIC). Their success hinges on finding investments that return 50x or 100x the initial capital, which can carry an entire fund regardless of how long it takes.
If you've had past success with a CEO, it's a strong indicator of their talent and execution ability. Following them to their next company, as one investor did with a CEO across three separate ventures, can be a highly effective investment strategy that leverages a proven track record.
Most investors expect a normal distribution of returns, but reality shows a few big winners are responsible for the bulk of portfolio growth. This is a core concept in venture capital that applies equally to public market investing, where 1-3 investments can generate over half of all returns.
Because VCs can't easily sell, they're forced to focus on a company's fundamental value growth over 5-10 years, ignoring short-term price swings. Public market investors can adopt this mindset to gain an edge over the market's obsession with quarterly performance.
Rather than making a large initial bet, follow the VC model of making a small investment first. Only increase your position size once the company has proven its model, reduced technological risk, or solved major distribution challenges, effectively de-risking the core thesis.