Investor Stories 488: Losing Conviction, Overpaying for Discounts, and Selling Too Early — Lessons from Volition, Acadian, and Interplay (Cheng, Black, Peter Davis)

0:00This episode is brought to you by Ramp, the spend management platform we use here at TFR. They're offering listeners$150 just to take a demo. We've never had an offer quite like this. Claim your$150 before this offer is gone at our partner link, ramp.com slash partners slash TFR. Now on to the episode. Welcome to the podcast about venture capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet.

0:39Welcome back to TFR. On today's special segment, we ask guests to tell the most important lesson that they've learned in their career. Here's a segment called Lessons Learned.

0:55on today's special segment we have larry chang of volition larry what's the biggest mistake or the hardest lesson you've learned and what's the story behind it when you look at the history of investments when you completely lose money on an investment which i've done the hardest thing about that experience isn't that i've lost money on an investment or volition has lost money on investment although that is hard i guess what's hard about that is anytime an investor like myself or even a VC loses money, that means the founder, the management team, all of the employees have probably lost as well.

1:27And I don't know if that's totally internalized when people and founders look at their companies, look at prospective investors. Like when there's a 60 or 70 % loss rate, that means everyone who worked in those companies, they lost, every one of them. And so I think seeing that early in my career, seeing that a couple of times here, it just makes me hate the idea of losing, not for me, but for everyone involved. It sucks. And I have the benefit of a portfolio and an investor has the benefit of a portfolio, but the management team and the employees do not. And so that's really informed our philosophy of wanting to mitigate losses.

1:59And we talk about to our founders, we want to help you achieve your dreams without risking them. So there's a balance to that. There are certainly other models where you're just going to go for it no matter what. But that's risking a lot for the employees and management that the investor can tolerate because they have a portfolio. So I think that's been a lesson that's informed our undermining philosophy.

2:26On today's special segment, we have Ben Black, Managing Director of Acadian Ventures, CIO of PowerLawCorp and founder of Raise Global. Ben, what is the biggest mistake or hardest lesson you've learned as an investor and what's the story behind it? I think the biggest lesson I've learned is to be nimble about strategies. You know, I think that my original Acadian funds, I really was so focused on, I trained my LPs to love discounts. Like I got to develop the reputation, you know, during the sort of the first 10 years of Acadian is being like, Ben gets great prices, right? I passed on a lot of great companies because I knew my investors would throw up on the price.

3:07And that, looking back at it, was a proving over time. The companies I had access to were amazing, but I wouldn't pay the price. And that's the most expensive and really long-term lesson that I've learned. And interestingly enough, when I went to do PowerLot, I think that now with my investing, I have a different group of LPs who are really just about the quality of assets. And that's been a really nice thing.

3:36are you still managing expenses with outdated apps and spreadsheets if so it's time for ramp the leading u.s spend management platform covering corporate cards travel ap and more all built to save time and extend runway we use ramp at tfr and it's been a game changer As our preferred partner, they're offering listeners$150 just to take a demo. No need to sign up. Head to ramp.com slash partners slash TFR to claim your$150 before the offer expires. Now back to the interview. On today's special segment, we have Mark Peter Davis of Interplay Ventures. Mark, what is the biggest mistake or hardest lesson you've learned as an investor?

4:18And what's the story behind it? This is one I couldn't talk about for a year. Made a really good bet into a unicorn, we all know. And I sold 12 months too early and left another 10x churn on the capital on the table if I had held it for 12 more months. And it was not my first payday as an investor, but meaningful for where I was, so that matters. And would have completely changed my net worth if I had held onto the asset for one more year. I didn't have perfect information and I had a really hard time forgiving myself. But if you're not having those experiences, it means you're not at the table.

5:00But I learned a really valuable rule of thumb. Here it is. If you really can't make sense of the trade between the short-term payout and the medium-term payout, because they both seem like they might be really good and meaningful, sell half. Buddy of mine called this schmuck insurance. I thought that was a great word. If I had sold half on that trade, I would have felt great. No, I wouldn't have maximized the trade. I would have been wrong. I shouldn't have sold it all. But I would have been like, hey, did great on this back end, made a rational decision on the front end. But I didn't sell half.

5:31I sold the whole thing. And now I have a sell half strategy when those trades come up. So I've got that very situation happening right now. You know where I read about that strategy, the sell half? It was an old Fred Wilson blog from many years ago. Oh, I wish I had seen it. I wish I had seen it. It was exactly what you said, though. It was something akin to, you know, if it goes to zero, well, you harvested half the value. And if it goes, you know, to the moon, then it's like, oh, I preserved half the upside. Right. The story, you can feel good about it either way in that scenario, even though it's not optimal.

6:11There's no perfect answers in this. You know, the interesting thing that we talk about a lot internally, it takes 10 years in VC, maybe longer, just to see the whole process. First five years, you're just learning about deploying, helping companies, learning exit strategies, how to generate DPI, how to play on the back end, how to be a good steward of capital for your LP partners. Those are all skills VCs don't often get to see until they're in year 10. so there is by the time most VCs are checking out because they've got a payday and maybe it's not what they want to do forever so I'm 20 years in now continuing to learn still learning but this exit stuff I hope any earlier stage VC is listening so they don't have to learn that lesson they can just pull that one off the shelf they're not quite sure, cut it in half, do the deal

7:11That will conclude this installment of Investor Stories. If you're enjoying the program and would like to see it continue, take a moment and leave a five-star review in iTunes. Okay, that will wrap things up for today. Until next time, over-prepare, choose carefully, and invest confidently. Thanks for joining me.

7:39Thank you.