Common investment 'rules of thumb,' like avoiding tools businesses, are often based on outdated pattern matching and can cause VCs to miss generational companies like Canva. Instead of relying on these heuristics, investors should use first-principles thinking to analyze why a product truly needs to exist, conducting their own research to find the underlying truth.
Investors naturally develop 'scar tissue' from past failures, leading to increased cynicism that can prevent them from backing ambitious, non-obvious ideas. The best investors intentionally fight this bias by balancing their experience with a 'beginner's mind.' While pure naivete is dangerous, so is excessive cynicism, and finding the intersection between the two is critical for venture success.
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.