We were hanging out with friends last night and one of them asked me how many investments I have made this year. I replied “one so far.” He said, “you are not very active.” and I replied “I do one to two deals a year and always have.” Which surprised him.
I have been investing in early stage companies since the late 80s and over those thirty plus years, I have personally led investments in about sixty companies. An average of less than two investments per year.
Our firm usually makes eight to ten new investments per year, which is one to two new investments per partner per year.
When you are making early-stage investments, which require a lot of your personal involvement over a seven to ten year period, you can only take on so many projects.
If you assume the average hold period for an early stage investment is seven years and if you make one to two investments per year, you will have between seven and fourteen portfolio companies to manage at any one time.
The low end of that range is quite manageable. The high end of that range is not. I have been there.
I believe that early stage venture capital done right is a service business in which the entrepreneur and the company they started is our customer.
We need to be able to service that portfolio company properly and that requires bandwidth at the partner level plus a team around the partners that can provide additional support.
And so that means managing the investment pace tightly and saying no to most opportunities that come in and being really committed and convinced about the projects that we say yes to.
And so that is what we do at USV and what I have done my entire career.
Doing this well is hard. Because if you only make eight to ten new investments per year and expect to produce at least one billion plus exit each year, something we have been able to do every year for almost ten years now, you have to have a pretty high hit rate on super early stage investments.
Our approach to making this work is an evolving thesis that tells us what to invest in and what not to invest in, rigor and collaboration in our decision making, and real substantial value-add post-investment.
This is not spray and pray, this is not following the herd, this is not momentum investing.
This is thesis-driven, active early stage investing, which has always produced the best returns over time and I believe always will.
