I’ve always liked pushing boundaries of responsibility at work. For me, working for someone often feels like a limitation to what I can and cannot do. But somewhere along the line, I’ve come to the realization that while being extremely ambitious is great, not having the relevant operational skills to back up that ambition creates a dissonance between what you think you can achieve versus what you can actually execute on. This is problematic for many reasons.
In the early stage investment scene that I’m active in, I’ve always challenged the status quo for how young you need to be to get into the game. Many have commented on how bizarre it was that I started my entrepreneurial journey on the investor side, co-founding Textbook Ventures (the first student-led venture capital fund in Australia) while I was in school. And truth be told, it is certainly not the norm.
Here are some lessons that I’ve taken away from my experience over the last three years.
Lack of Operational Experience
The biggest issue with younger investment partners is arguably their lack of operating experience. When we started Textbook Ventures, the consistent piece of feedback we got across the board from our advisers and mentors was our apparent lack of track record and experience in investing.
And it’s clear why. Well for starters, my co-founder and I had merely interned at funds, not run them. Second, we literally thought that we could pool some money together and raise a fund. It wasn’t until one Saturday morning when I received a call from Patrick (my co-founder) that indicated to me how much we didn’t know. The call started with something as follows:
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“Hey mate, I just found out that we might need a financial license to do what we’re doing.”
Apparently, there was this thing called an Australia Financial Services Licenses (AFSL) that was required to operate fund. We sure as hell didn’t have one of those or any idea on how to even get one. Having now written a paper on securities laws, I’m pretty sure we would not have passed the pre-screening check.
When I look back at our journey now, I wistfully smile at the thought of our naivety and consider how much we didn’t know. We had no absolutely idea on how to operate a fund let alone how to set one up. If you asked current David to invest in David’s fund three years ago, I’m pretty sure I would’ve said no.
But fortunately for us, Textbook Ventures had a wonderful level of success over the time I ran it. We worked with fifteen companies over the course of two years, with more than 50% of them raising follow-on funding from both local and international investors. The takeaway here wasn’t necessarily how successful our program was, but rather the things we learnt in putting together our company. I was fortunate to learn from some of the best investors in Australia and had a network of mentors who were always incredibly gracious with their time.
Arguably, this unique vantage point led to one of the best possible learning experiences into venture capital that anyone could’ve gotten at the time.
Guided by the fact they’ve made one or two “brilliant” investments, younger investors often develop this inflated opinion of themselves, thinking that they can beat the market and can make excellent investment decisions.
Here’s a hard fact: You probably got very lucky and shouldn’t count on it to happen again.
The first check I ever wrote into this company called Virgil Capital. I came on board as their second investor and wrote a $40,000 check into the company (comprised of my savings and my brother’s scholarship money) in early 2017. Virgil Capital at its inception, was a nineteen-year-old armed with an arbitrage bot. I’ll spare you the details on why I invested but my investment into Virgil has returned a phenomenal multiple for me across the 1.5-year horizon that I’ve been invested in them. The fund now manages over $80 million in assets. I just happen to be very fortunate that my first investment turned out very well; but the financial success I enjoyed quickly turned into an ego problem for me.
I started believing that I was an excellent investor. So, at the start of the year, my attitude towards other founders and investors was nothing short of arrogant. Instead of keeping my door open to help founders and investors in the crypto scene, I told myself that I would only interact with only well-known investors and projects.
This attitude was not only a disservice to the industry that I was a part of but also lost me numerous investment opportunities. I recall dismissing a smaller investor and a project he shared early on in my crypto investment career, only to find out six month later that this particular investor was the lead for one of the hottest projects in Hong Kong. It costs you very little to be thoughtful and respectful of a person’s time.
So next time you’re thinking of shooting a thoughtless rejection to a founder or investor, pause for a second and consider what you could do for them instead adding destructive commentary. This thoughtfulness will only take a few minutes on your end but will mean the world to a founder, particularly if he or she has been receiving many rejections from investors. Their current project might not be the right fit but come the next potential unicorn, you’ll be the first investor they think of.
I’ve learnt that there is no place for egos in the investment industry, and for those that do, they get pretty quickly weeded out and sidelined. Always endeavor to pay it forward where you can because it’ll come around full circle when you least expect it.
When you’re playing in an industry with folks who’ve been investors for 10+ years, built and sold a company or two, it’s easy to feel out of your depth. And truth be told, you probably are.
As a young investment partner, you might find yourself trying to fill shoes of people who are innately more experienced than you. You’re trying to live up to an image that aligns with the title, not one that aligns with your experience. As such, you become reluctant to ask questions and or clarify certain concepts out of fear for sounding silly or ignorant.
Because, you know, partners are meant to know stuff right?
This is destructive on two fronts. Your capacity to learn suffers as you become so focused on trying to maintain that image rather than trying to learn. And on the flip side, no one takes you seriously since you’re trying to do things that are clearly not representative of past experience.
This has been one of the biggest challenges that I’ve faced to date. For me, I’ve dealt with the internal struggle by building a track record that speaks for itself. We can all talk about the number of years of experience you might have in a given industry, but ultimately its the numbers on the table that tell the real story, not the sales pitch. At the end of the day, the performance of funds are evaluated on the numbers they deliver and not what the fund managers know. I’ve also found it important to unbundle my feelings of what people perceive of me from how I approach my job. Every second you spend thinking about what people’s perceptions of you are (whether good or bad), is time spent away from doing something useful. The way I see it is that it is simply irrational to create distractions for yourself.
My experiences with Textbook Ventures, Virgil Capital and now 256 Ventures, has taught me that despite going into the battle as the underdog, an extraordinary result is always possible.
So, where the good stuff?
The purpose of this piece is not to try deter any readers who are aspiring to become young investors. On the contrary, I would strongly encourage you to consider start investing small amounts of your money into projects, whether it be stocks or your own company. You’ll find your learning trajectory will be far steeper when you’re invested in something — because, if you win, it’s your profit, but conversely, if you lose, it’s your loss. The responsibility that comes with managing your own company teaches discipline and pushes you through an emotional journey that will force you to appreciate the risks of the decisions you make. When you begin to take on employees, that responsibility is further amplified as you need to start considering their well-being and livelihood too.
It’s not necessarily a bad thing for a young partner to run a fund. You can argue that it has its benefits since younger investors might understand a particular market better or approach investing without prior biases. Both are valid points among many others. But before diving into what you might perceive to be a glamorous role, I urge you to properly assess the risks that are involved in moving into such a role sooner rather than later, as they are frequently overlooked.