Macro versus Micro: the Challenges of Investing Well as a Venture Capitalist
Frameworks are critical for any investor whether in public or private assets.
Ultimately a good investor has to understand two key categories to have a chance. I classify these as Macro & Micro.
Macro are the underlying trends: economic, sociopolitical, technology, consumer behavior, generational, globalization versus deglobalization. The actual market they are targeting & whether there is a broad range of customers there.
Micro is usually the tactical level. Things like the team and & company. Their ability to execute. The actual business model. How they are positioned versus competition.
You have to get both right to have a big HIT.
This is why I find the continual VC debate of market versus team stupid and tiresome.
Having said that, if you HAVE to make a choice, Micro is what early stage startup investing is about. Basically “Pick the team”. The team can potentially grind things out and wait until a trend turns their way. Or they can pivot into a new market (whether customer segment, industry or geography). Or even change the business model. That is probably the reason why there has been so much talk recently of VCs directly investing in the individual as stated in Sam Lessin’s excellent article here: Investing Directly in People Is the Future of VC. Here’s How to Do It.
Now don’t get me wrong. Targeting the right market and having underlying trends support your business are critical. Individuals really matter here: they can overcome market deficiencies or many times their own personal deficiencies & limitations. I’ve also seen way too many examples of founders getting the market right and hitting product market fit but are unable to scale. They flub up things so badly, they both lose momentum and enter a death spiral.
This is the business world’s version of the “Great man or woman” theory. VC is ultimately about being in the “human potential business.” Can and do you recognize a founder’s true potential?
This is why I specifically look for founders who have grit, are decisive & mission oriented, have faced & overcome personal challenges in the past. In the old Chinese saying: they “have tasted bitterness.” These Founders typically have played sports at competitive level, or are ex-military or immigrants or children of immigrants. These are folks who can build, position themselves in front of a market and last long enough until trends turn their way.
Easier said than done of course. But I’ve seen so many examples of these successes in the last 20+ years across the globe that I 110% believe it’s more than possible. And it’s also becoming more common over time as best practices and model examples proliferate.
What a wonderful time to be an entrepreneur and investor!