Venture portfolios are usually valued at the price of each company’s most recent round, so a portfolio can look strong for years before anyone knows whether its businesses will last. We try to keep the longer question in view.
That affects whom we back. We spend less time on market-size estimates and more on how a founder handles bad news, how they hire the second time, and whether their first customers would buy again.
Sizing and reserves
We size each position so we can keep investing in later rounds without being pushed into one we don’t support. Reserves for follow-on investment are set aside when we first invest, so founders can plan several rounds ahead, and we have no reason to push for an early sale.
This approach costs us some deals. When a round is priced above what we think the business is worth, we don’t take part. In return, our interests and the founders’ run over the same period.