“Growth Investing” Versus “Value Investing” Style in Venture Capital

Growth investing is defined in the stock market as investing in an asset that has the potential to outperform the overall market.

Growth investing in regards to Venture: Usually a proven & reputable Founder (ie. who has had an exit 100M usd+), from a renowned company alumni like Stripe, Uber, AirbnB (or Facebook or Google back in the day). Super sexy space, competitive round.

This is an access game. This is where branded investors like Sequoia, Accel or A16Z really shine. Their firms brands, reputation capital and network are crucial to selling and getting a founder to let them into the round. I stress the point “let them in.” Deals are being oversubscribed literally within 24 hours. Or for some lucky or fortunate companies even getting pre-emptive term sheets. I have seen this happen for at least 3 of my companies for series A stage in the last month or so. I should note that these firms are also not afraid of batting aside others through offering higher valuations or better terms. Or in some cases even squeezing earlier investors out of their pro rata.

Value Investing is defined in the stock market as investing in companies that are trading below what their real worth is. In Venture capital, it is going after under appreciated sectors/stages/founders/geographies. I note that Founders Fund and Khosla seem to be great examples of this.

Also we see the rise of Studios who farm and cultivate founders for this, 8VC is a great VC fund but they do an excellent job incubating companies too. Vertical focused VC Funds are also better able to practice value investing style as they can cultivate and even help ideate with founders in their specific sector before the founders even start a company.

You can make money with either strategy. In fact, the best investors try to do both but all investors tend to predominately follow style over the other. In my time, with the volume of deals I did with my team, we had to pursue both strategies. But most of my best returns came from the value approach. This was one of looking for founders, sectors & companies that were not as obvious and usually overlooked by most investors in Silicon Valley. Ie. Unsexy investments. It requires a lot of homework, digging around, public speaking, networking & travel aka #AirplaneArbitrage. These tendencies explain why I spent so much time exploring new geographies full of awesome but under-appreciated founders served by inexperienced and lacklustre investors. Regions like Central/Eastern Europe, New Zealand and Canada to call out some specific geographies.

Personality wise, I also lean more toward the Value investing method. I hate being rushed and actively fight against FOMO (Fear of Missing Out). I like to get to know founders over time when possible, just as I think it’s important for founders to get to know me first.

As always, there is no one best way. It’s what is the best fit for you as an investor. This style preference is also something founders need to understand when looking for investors.

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Ever curious: Tsundoku, Reader, Aspiring Shokunin, World traveller, Investor & Tech/Media exec interested in almost everything! www.marvinliao.com