Starting a VC Fund, Episode 16: Measuring Your Effectiveness

My name is Patrick Iwas. I'm the founder and CEO of MindMaven. We help leaders free up about 10 hours a week and then help them use that time to invest into relationships.

I'm Charles Hudson, managing partner of Precursor Ventures. We're an early stage venture fund that partners with founders at the earliest stage of their journey.

And today I'm really excited about the topic. A, because it's a really important topic and B, it's something that Charles and I have worked on for many, many years and I'm actually personally really proud of what we were able to achieve. And it's really focused on how do you scale yourself as a first time gp?

And.

The question is that Charles, I think you get a lot of questions from people about how do you do it as a single gp. Right? You have incredible NPS scores from your founders. You are known as an extremely founder friendly VC which just weeks of effort. And.

How many portfolio companies do you actually have that are active?

We've made 325 investments at Precursor. There's about 260 of them that are still active today.

Well, that's insane, right? So you're basically taking care of 250 + founders and they're still raving about being part of those people that got you to invest into them. And so the question is how do you actually scale this? How do we go about this? And.

For that I think the first thing we should do is actually go into some of the fundamentals about the VC world, how it was and to what it actually transfers.

I agree. I've been a venture capitalist off and on for almost 25 years and know when I first got in the business capital was scarce. Like actually having access to capital was a differentiator. There were not that many venture funds. There weren't these sub $100 million micro VC funds. You had angels and then you had basically series A venture funds and not much in between. So simply having access to a pool of capital puts you in pretty rare company. Fast forward today there's thousands of venture funds and probably tens of thousands of active angel investors. Capital is no longer differentiator.

Yes. And something interesting happened, right? Like, like it almost commoditized that industry. Right. If you have capital, that doesn't mean that you basically can win because there are a ton of other people around there. And so if we fast forward a little bit more, people looked at the different ways to basically differentiate from that. And, and one of the things that we then saw is that companies like True Ventures or First Run Capital started really investing into this founder friendly concept and they primarily made that come real by giving these like founder services a real run. And then that worked for quite a while. But how is that today?

I think now there aren't many, if any, series A venture firms that don't have a portfolio services team. It's gone from a differentiator to I think a table stakes thing you have to offer if you're a multi partner, series A venture fund because your competitors will all offer, whether it's talent or ops or whatever it might be, portfolio services people, it's, it's no longer a differentiator. But I tip my cap to those firms for having the foresight to maximize the opportunity that they got from being early to recognize that that was something that met an unspoken need on the part of founders.

All right, but that doesn't help our listeners today because they're sitting there saying, man, I'm a first time GP now and I'm entering this market with all these gorillas that have all of this infrastructure and how the hell am I supposed to win, right? And while that must be really daunting, the one thing that we have to realize is that there are some really interesting ways in which VC works. One of which we might not like it, some of us might not like it, but it's still basically the reality is that 99% of the investments you will make, you will get in form of referrals from people you know and trust. It just influences probably a lot of your decision making. And even if you want to get away from that, it'll be a percentage game and the large majority will still be based on that because it's just how this industry still work and probably will maintain working that way. So. And within that, there's something actually really powerful to realize because we just basically discussed that you can't really differentiate on the product anymore. Capital, even founder services, even being founder friendly isn't that much of a differentiate anymore. It's almost expected. But the one thing you can differentiate is about how people feel about you or what kind of relationships you have with them. And if you actually believe in this notion that most of the investments you make will come from people you know and trust in some form or other context in your network, then you actually have.

A tool there, a situation that actually is potentially creating for you. A Charles. How do we call it? A level playing field.

Level playing field.

Yeah, right. That's the word we're looking for.

In which you can actually not only win against the big Ones and the incumbents in the industry, but actually outperform them in some way or other. And that is basically very simple. It's not just about people knowing that you're there, but basically it's much more about how you make them feel. And that is basically having to just really making sure you invest into relationships and building relationships. And relationships are built by the sum of all interactions that somebody has with you. Right. And so the answer to that, first of all, Charles. Right. Would you agree with that?

I would agree. And I think the funny thing, Patrick, is whenever I talk to people like, well, how do you do it at Precursor? Like, what's the one thing? I go, well, there isn't one thing. It's actually like a hundred little things that we try to do every single day at High Fidelity that create the sum of the experience. And if it was just one thing, it'd be really easy. But experiences are built over people's perception of what it's like to work with you is this cumulative experience of every interaction they have with you, no matter how small they are, no matter how small it is.

So I know this really sucks for you listening in right now because we just told you there's a really amazing way we can outperform everybody. And then we're like banging it down and saying, but you have to do a lot of small things and that's really hard work. And it is. Right. And let's give them some examples on what these small things are. Right? Like you gotta. You got to answer emails, not ignore them. You basically have to answer them with a certain amount of speed. You have to be thoughtful when you say no. Why? Because you're going to say 99% of the time no to people. Because that's your job as a GP man. You got to get really good at not only offering introductions to people you meet with that are high quality in your eyes, but actually delivering those.

You got to just simply live to the old adage of doing what you say and saying what you're doing. Um, and, and, and, you know, it keeps on going, going. You gotta make people feel really good. And, and, and, Right. We could go on talking about a lot of other things. What comes to mind for you?

I think one of the things I've really learned from working with you is I think it really helps if you start off with a theory of like, well, what does it look like to be great for the stage where you invest? And at Precursor, we invest in a lot of first time first founders or people who are still sort of early in their founder journey. And what I learned really quickly is, like, one of the big things this audience needs is responsiveness. It's to know that if they reach out to you with a question or they need something, that there's a really high probability that you're both going to get back to them with an answer, and that the answer is going to come in the time frame where it's still useful and helpful to them.

Mm.

And if you say, like, that's an operating. Sorry, that's my son crying.

I actually appreciate that.

Yeah.

But I think if you start with that as an operating principle, you just say, okay, well, what does it mean to be responsive to founders? It means you take the volume of inbound requests as a given. It is not something to manage or try to reduce. You're just like, the better I do at being responsive, the more things founders are going to ask me to do. So that means I need to have a set of systems and processes, some of which are purely about adding more capacity to the system, and others are just like, hey, people have asked me for this same thing 10 times. Is there a more efficient way for me to deliver this to them, short of getting on the phone with everyone? But I think it really starts with deciding, like, well, what are the principles of the relationships we want to build with founders? And another one for us is really, we want founders to really believe that we care as much about them as we do about the company, that they're not just a line on the spreadsheet, and there's a bunch of activities that we've undertaken to make people, whether it's recognizing them on their birthdays or other big life events that we hope make them feel cared for.

Yeah, no, I agree. And so basically, you brought up the system, right? And the system can be basically built out of specific habits. You develop certain skills of delivering great experiences, best practices, technology, and most importantly, I would say help, Right? Like, the question is really, how can you build a system that helps you scale? And I think one of the most powerful tools in that is to basically bring resources in to support you as the GP in helping you deliver better experiences for you. And that basically comes in a very simple form of hiring an ea. So one of the advice that I think both of us would have for you is hire that EA very early, make it part of your launch plan to a certain point.

And then basically turn this EA into something that we call an em. EM stands for Engagement Manager. And it's a bit different than what you would think the EA is here and does a lot of tactical stuff, mostly scheduling or travel. And then some people work with chief of staff. The M is in the middle. It's basically filling that gap between those two roles that I just mentioned. So you can think of it as a hybrid between an EA and the Chief of staff, but the role is really, really simple. It's got to do two things, free up as much time as possible for you on things that you're doing that are actually not providing the value and the experiences you want to deliver to the people. And second, equally as important, if not more important, is help you deliver meaningful, powerful experiences to those people you interact with in consistent and powerful way. Right?

Yeah.

And it's really interesting.

One of the big pieces of pushback I get from people is like, oh, that seems like a luxury. I'm like just getting my fun started. That seems like I'm like, it's not, it's not a luxury. It's actually a requirement if you want to get leverage for yourself and deliver great experiences. Because if you're, especially if you're a single gp, when you're in a meeting, if you're present, you're not doing email.

Right.

Table while you're on Zoom, you're present, which means in that 30 minutes nothing else is happening in your business.

Yeah. So we should probably give people a little bit of a play idea of what are the playbooks of how you would work with this resource in the most meaningful way. And I think we should start with a very simple case. The simplest case is basically you, Charles, agree with this. It's probably a good idea to send somebody a follow up email even if you are the investor, especially if that founder that you met with is a high quality founder, a follow up email that, that follow up email will probably be appreciated by the person receiving it. But the problem with that is you probably have what you have 10 to 15 meetings at a time. Right. Each of these meetings will require a follow up email. If you had to write it, that's 10 minutes per meeting. We're talking about 150 minutes just there. That's impossible. And so you end up not doing it. And today in the world we're living in, especially in the tech industry, if you do 30% of the times follow up emails to the people you're meeting, you're probably world class. It become the norm, this average layer of not following up. So imagine we could find up a way for you to basically do this yourself. I mean do it, do it consistently Right. And that's basically where this role of an EM comes in. And we solved it in a very simple way by looking at this follow up email and recognizing three things about it. Number one, nobody has ever valued you for writing an email. Right. They never have, they never will.

That was a hard thing for me to wrap my head around when you first told me that.

Right, exactly.

But it's totally true. But I was like, wait a minute. No, it matters that I know. It doesn't matter that I typed the words.

That's right. They only value it for sending it. That's the point. You still have to send it. And that's all they appreciate. The second thing is that you can talk four to five times faster, faster than you can type. And the third thing is that you can talk wherever you are while you can only type when you're sitting in front of the computer. Right. And so the way we solve this is zero rocket sense, all common sense. We basically install a dictation solution onto your phone that has the ability to ship it to your assistant, preferably into a task management solution so that the assistant can basically run with it. They will then listen to what you said, turn what you said into something that reads well, and put that into your draft folder. So now we have this really interesting situation where you have 10 dictations you've made throughout the day. That means you have 10 emails sitting in your draft folder at the end of the day and all you have to do is read them, click send, read them, click send, read and click send. And over the time, months, you know, you just this em that works for you will learn how you write, learn how you talk, and you will actually find yourself having to do very little edits. But is that actually true for you?

Yeah, several years in. And I think the important thing is you as the dictator, no pun intended, have to provide high quality feedback. So if you just go in and I had to learn this, if you just go in and fix it and send it, you're robbing the person who did the drafting of the opportunity to learn what they could do differently next time.

And the powerful thing about that is that you are actually never having to sit down in a meeting with this person to teach that person how to operate with you, which you think is not a good use of your time. Over time you feel like I'm investing too much and I'm not getting the. You're doing it organically on each case because you end up just dictating a little bit more feedback back to this person. So that's really powerful. Right. But the more powerful thing is that basically, and I know I've seen this with you, Charles, is that you can end up sending more thoughtful emails. You will add the comment about what you've learned. Oh man. You know, you guys, while I can't invest into you, I have to honestly believe that your idea of how this distribution model could work has some real legs. And I actually thought it was inspired. Or you can say something you appreciate about these people and that is the quality of experience you're now delivering that will allow you differentiate yourself in the heads of those people that you're sending these messages to. Even to those that you say no to. Right. Or specifically. Because guess What? You say 99% of the time, no, a certain percentage of those people are high quality founders that will come across other high quality founders that you want to hear about. So it is, and this is the point about this luxury versus not a luxury doing this. Getting other high quality founders to think of you and sending you deal flow isn't optional. It is your core competency for which your LP's giving you money. Right. And so that's the idea with this. I think we should give them maybe one or two more playbooks of how you would work with an em. You're down for that?

Yeah, totally.

Well, let's go into the one that saves probably the most time, which is this notion of inbox shadowing.

Oh yeah, right.

Because that is, you know, like Charles, how many emails do you get a day currently?

3 to 400 ish.

Yeah.

Seems to be the new watermark.

Okay, so guys, don't get scared about that. Charles is operating at a whole nother level compared to all of the clients we work with. But he makes it work because he has a fantastic EM and a team that basically does inbox shadowing. And it works this way. You allow this person to go into your inbox. Yes. You have to get comfortable with this notion of privacy and so on and so forth. But I've worked with so many.

Venture firms and partners there, you know, Andreessen Horowitz, Benchmark Capital, Sequoia Capital, and every single one of them found a way to get comfortable with it. And so you do that now. You, you empower your EM and you have to really think about you have an assistant now that with whom you are really glued well together. You have a high level of trust. You would rate this person as 9 out of 10 or higher. And you feel that person has actually the ability to make great judgment. He or she will now go in and basically review your emails and answer them if they know how to answer them. So into your draft folder, of course it's really important that you never allow that person to send emails because then you lose authenticity and genuineness and you can actually have a negative impact on that relationship. The whole reason why we're doing this, right? And then the, the next layer is that this person will basically figure out these are emails that they don't know how to answer and they will move that into a section called please handle. Right? These are then often, right. They're often decisions that you have to make or request for advice that have a certain level of nuance to that they don't know one thing that you'll see and I, I'm sure Charles, you can talk about this is the better you, the longer you work with EM and Inbox shedding, the less you find in needs handle.

Oh yeah. I mean my I, you know, I've been working with my em for 5 years now and my chief staff coming up on a year, the please handle or those just those are very rare, right?

But let's say you start off and you still find a few of them.

Your relationship to your inbox will fundamentally change because you don't feel like you have to go to it because you might be missing something important. If you get a red hot type of email, founder is leaving or whatever, right? Or we need to separate or something like that. Your assistant, your EM will basically find a different channel, be it slack or text or something, let you know, hey, you need to go to your inbox. So all of a sudden that mental load of having to be dragged back to your inbox, the enslavement that you might be feeling from previous jobs is completely gone, right? And you will go in when you have time, often these like little 15 minutes between meetings and you will send out what's there. Because most of those emails that you will get that your EM will answer are tactical in nature. We've seen that an EM can answer 85% of the emails you're getting. Easy in your case, Charles, I think it's way higher by now.

And then you basically send them real quick out you're getting back to those people that you might otherwise be a bottleneck to. And you also are delivering service basically at a much higher level. If you then buckle in standard answers to it like we've done with you, Charles, right? The service experience, the quality of the experience goes up way more. And so that's what you do in these 50 minutes and you answer your draft folder. Then basically, if you have a little bit more time, you go to the please handle. But instead of like writing emails, you just dictate them, especially if they need to be a bit more thoughtful and might be two or three paragraphs, but you can get a two to three paragraph email dictated in less than a minute. You can't type that. There's no way. Right. Your assistant knows how you write, turns that into something that reads well and sends it off. If it's a standard question you get, often she will also take that and put it into a template database to reuse in similar cases in the future, increasing efficiency. Right. And so, long story short, this notion of inbox shadowing really has a bunch of benefits. The first one is that you get freed up from the mental load of feeling enslaved to the inbox. And I was so surprised when we basically started doing that that that's what our clients actually thought was the biggest value. But another value is that you can save about 55 to 65% of your time that you're currently spending in any of your inbox at, be it slack or.

Email. And let's say that's three hours a day, which is probably realistic.

You're getting an hour and a half a day back, and that time accumulates to about 8 hours to 10 hours a week. And then we want to take that time and basically invest that into relationships by finding ways to basically become a lot more proactive about this. And so that's, that's one, one thing that I think is another interesting playbook. But let's, let's. And the whole point is. Right, Charles, how many different playbooks do you think we've deployed?

Oh, 30 or 40, probably.

Right, exactly.

Fundraising. But we have all, we have so many.

Right, exactly. And that's how it works through, through various systems. But the, the bigger point is, is that we're doing this because we want you to be much better at differentiating yourself in that marketplace by making those fund founders that you really want to win feel like you're the safe choice through the consistency of the experience. They are, they are going through leading up to their decision to take investment from whomever. And if you're consistent with a ton of small things and you enabled yourself to do that through the, for the work of that system that we talked to that has resources in it, like an em, you know, you can actually end up getting to a really interesting situation where you have a chance of winning deals that you Think you can't win even if you are giving them a lower valuation than the next guy? Because more and more high quality founders I believe in, Charles, you can like say, see if you agree with me, are making their decision based on a combination of what the valuation is and how safe they feel like they can be successful with you.

And I think also it's worth noting that we, you know, 25 years ago, there was no slack, there was no Facebook, there was no Twitter. Founders didn't know other founders. It was actually pretty hard to find out, well, what it's like, what is it like to work with person X? And because capital was scarce, even if you found out the person was a clown, you're probably still going to take their money.

Yes.

Now we live in a world where both entrepreneurs are far more connected as a community than ever before. And which to me the benefit is that like being responsive and high quality and caring and effective, the benefits of that have never propagated faster.

So if you can consistently commit to these things and deliver good experiences, not only will you win deals where you're competing, you'll win deals where you're not even in the room where a founder that you've backed or someone you've worked with will pound the table for you and you won't even know they're doing it. This happens to us at Precursor, like actually quite frequently. Founders will come and say, hey, I was hanging out with this person. They told me I absolutely had to take your money. And this person is someone I totally trust. I don't know what you're doing for this person. But they were so emphatic that that's why we're on the phone. And I'm like, well, that's great. Like, it's nice to see like the benefits. But my only argument is that like, this is, this is good hygiene for your fund. If you can run consistently at these levels and deliver great experiences, you will get many benefits that you don't even, that don't come from sort of the direct head to head contact with like trying to win a deal.

And the most important thing I want to add to that is that if you look at each of those scenarios where you got that kind of recommendation and you look at what you did from them, you never did anything big for them. It was always a consistent set of small things. You might have checked in with them after the baby was born because you heard it six months before and you had a system that tracks that, or it might have been that you thought of them. Because they told you a while back about some of their biggest challenges that they're facing, and you connected that with somebody met and you did a quick introduction. It is just utilizing the small stuff and the small sparks that you have to deliver this experience of care. And it is actually much easier than most people think if you have the right system.

And I'll tell you one more thing. I think one of the hardest things to do in Venture, especially a lot of meetings, is like, it's very easy for your mind to wander, especially in the era of zoom, where your context switching all of the time. And the one thing I've learned is that knowing that I'm going to get two minutes at the end of the meeting to word vomit a debrief that my team will make sense of, makes it far easier to be present in a meeting. I think it's a big deal for founders. Like the reaction you get when you're fully present, when you're not. Yeah. Like doing this typing or your mind's thinking about the last meeting. Your mind's thinking, I gotta go right down. The ability to sort of process the last meeting, park it somewhere, come to the next meeting, be fully present and really listen. You just pick up so much more from those interactions with founders when your mind is calm and clear and you're not busy or frazzled or trying to hold a bunch of facts from the last meeting in your head so you don't forget them.

And that's basically when they walk out of a meeting with this subtle experience of somehow I feel Charles cares, and that can make all the difference. So I think we should wrap it up here because this was a really long one. Everybody who's listening here, there's a lot more to unpack. If you want to learn more about this, reach out to me or to Charles. But we're always here to help. We're very excited about this and hope we'll be able to help in one way or the other. Thanks for listening.

Thanks.