Outside In: Lessons from a Year in Venture
By Theo Katsoulis
Everything is fintech! No, wait, sorry that’s a different post.
I’ve been at Financial Venture Studio for over a year. Prior to this, I started out on a CFO team (yes, there’s more than one) at JPMorgan Asset Management, and was most recently at a large non-profit foundation, helping underwrite investments in Private Equity and Venture Capital funds. While I’m not the only person who has ever switched from an allocator role to an investor role, I thought it would be helpful to share my experience of what’s the same (pick the right people!) versus what’s different (suspend disbelief!). While things operate a bit differently from what I was used to — imagine going from the naked eye to peering into a microscope — it’s been really fun and enlightening to dig deep into a specific sector and stage through my work at Financial Venture Studio.
Here are some key takeaways from my first year in venture:
Ask the right questions. To date, I have only known institutional investment management, first starting at a large bank, then moving to a nonprofit limited partner, and now working at a seed-stage venture fund. In all cases, the most valuable insights come from those who ask the best questions, which requires a particular mix of domain expertise and intellectual humility.
Know what you don’t know. Knowledge gaps never go away, so don’t be afraid to ask questions. In my prior role on a team of allocators, I came to really appreciate the importance of asking questions. Once you ask the right questions, it’s then critical to develop a clear vision of the strategy, to identify the risks, and to determine whether the metrics corroborate the narrative. I will never know more about biotech investing than a biotech specialist; the key is to evaluate the people and process, not necessarily challenge every assumption in the underwriting model.
Separate opinion from vision. In venture capital, more so than almost any other asset class, one must bias towards optimism. What I think about a sector or specific business model is much less important than trying to understand why the founder is building something from scratch. Doing so helps create alignment and leads to better dialogue with founders. After all, how can you discuss a topic without even hearing the rationale? When learning about a company and team, I try to focus on: is the vision clear, is the problem big enough, and can this team move, and learn, fast? History has shown time and time again that it’s a small group of people who initially believe in the next big idea, who will effect the greatest change. Incumbents, investors and media typically fall back on “that will never work” merely because it hasn’t been done before, while the small, nimble team pushes forward with the future.
Capital is a commodity. For most founders, time is the most valuable resource. Aside from having to re-explain a complicated sector for every new investor, partnering with the investors who know the industry (or geography) can be a huge win, because they know the right questions to ask. More importantly, once those questions are on the table, the right investors can (usually) help introduce founders to the right people who can help accelerate the quest for a solution. At FVS, we try to take that one step further by leveraging a structured networking program to build camaraderie, expand the networks of our founders, and bring in sector specialists to advise our firms. It’s this hands-on approach that helps us minimize surprises, move quickly, and proactively support the founders. (All of this is what drew me to FVS in the first place — well, that and an interest in fintech.)
“Why does all of this matter?” Our focus on founders with big visions and fintech experience is key to our execution; we provide more than just a check, and our team’s collective knowledge allows us to quickly hone in on the key risks and value drivers for each of the 1,000+ fintech businesses we have come across. Importantly, our speed and experience is welcomed by founders and helps us effectively invest beyond just Silicon Valley and New York. Whether it’s through our application process (50% of applicants come from outside of the Bay Area and New York) or our network, we can target other cities such as Chicago (NestEgg) and Denver (Reserve Trust), which is key as workforces become more distributed and investing moves beyond the traditional hubs.
Ultimately, investing in people is a long-term commitment, especially when it comes to being an allocator or early stage venture capitalist. It has been a great experience learning from so many domain experts and people who are passionate about fintech. I’m excited to continue asking questions, to chip away at a mountain of unfamiliarity, and to grow my understanding of a sector that is (sometimes less obviously — looking at you, Stripe and Plaid) permeating more of our everyday lives. Software may be eating the world, but fintech will digest it.