I thought the following passage from Victor Lazarte, Benchmark’s newest partner (on the Venture Unlocked podcast) was fascinating.
“So you’re not going to come in and like, just have this crazy insight. So the way we add value is, like, every week you’re doing, frankly, like, part of it is this boring work that other people could do. Like you’re closing candidates, having conversations with this candidate, explaining to them, why the vision is amazing, why the entrepreneur is great. And you’re doing all this work that, frankly, a lot of people could do.
But through that, you’re getting a lot of context on the company. And then two or three times a year, the entrepreneur is going to make a very important decision, and he will need a thought partner.
The entrepreneur has two choices. Like, if either they’re going to call you and discuss what’s going on, or you’ll have to call someone else and spend like a couple of hours explaining the context that the person needs to be able to help make the decision.”
And he’s going to call you because you’re the only one that has context, like you’re the only outside person that has context on the company. So in a way, all this work that you do, week in, week out, is kind of like a tax that you pay for when the really important decision comes along”
“You’re in this position that, hey, you’re able to help the entrepreneur. You’re able to be the thought partner that this entrepreneur needs when making that decision. And this compounds very strongly over time. It’s like this two or three times a year, you make that decision marginally better.
Like over the 10-year journey that it takes to build a company, like your company is going to be a lot better, right? And your relationship with the entrepreneur will also compound in this way. It’s like five years in.”
Victor’s assertion that VCs provide ready context to founders when they work with them closely over a long period, is an interesting parallel to context windows in querying LLMs (that is, the amount of text it can consider and process to arrive at an output). You can think of venture capitalists as providing long, preloaded, (almost) available context windows to their founders through their long interactions with the founder and the company. Reading this passage brought back memories of a past conversation.
A few months back I had to recuse myself from supporting company X due to a conflict with company Y. Company X and Y were both companies I had been supporting for a long time, but I was more closely associated with company Y. Company Y was exploring something in X’s domain and that was the spur. When I reached out to the founder of Company X, to tell him I have to recuse myself from his co, he was a tad upset and said “I have shared so much with you, and all of Company X is in your head”. At that point I told him will never share anything outside with Company Y and he said but that is not the worry. I was puzzled when we terminated the convo. Now I have understood what he was trying to say. I was deleting all the carefully stored context we had preloaded as prompts in my brain, and was wiping the memory clean.
As seed / early stage investors, this is a real and rare privilege we have – that of holding this context in our heads so our founders can quickly check with us and get our thoughts / reactions. For other privileges read this piece on the seed investor as priest-jester. We need to continuously add to this context and hone it, and be effective stewards. Essentially, good venture is about providing sufficient context capital to our founders.