Five Years of Venture
Reflections on whaling captains, demons, and conviction
We were at a Greek restaurant in Miami when Sebastian told us he had a demon in him. It wasn’t a confession - he was laughing, and making us laugh even harder. That came natural to him as a former standup comedian.
Sebastian had grown up in the Dominican Republic, come to Miami as a teenager for high school, and that’s where he met Michael. They became close friends, and after college linked up to start Rilla together, along with their cofounders Chris and Lukasz.
Sebastian had no technical skills. As he put it, he never had a real job - despite being an econ and data science grad from NYU. After college he started doing standup in NYC, which he explained was like building software, because you have to keep iterating and getting better with each iteration.
Sebastian, Michael, Chris, and Lukasz had been grinding on their startup for nearly 3 years by the time my partner Brandon and I met them in the fall of 2022. Something had clearly started to work though in the last few months. We did a four week diligence sprint and saw the market was wide open with no competitors, customers loved the product, and the metrics had just started to inflect.
But what I remember most from that dinner was that Sebastian could sell. Not in the polished suit-and-tie way, but rather in the way that only someone who’s stood alone on stage and bombed enough times to learn how to hold a room can sell.
When Brandon and I left that dinner, he looked at me and said, you think that Sebastian guy is a little crazy? I said yes…and we have to do this deal.
Rilla was the first time I ever led a financing round in a startup. It was the biggest check I had pushed since I joined Crew. And not only was it personally my first time leading an investment, but it was the first time our firm Crew Capital had ever led an investment.
Until then, Crew Capital was an angel fund writing small checks alongside of lead investors like Sequoia, Accel, and IVP - some of the best venture capital firms in the world, which we had strong relationships with from UiPath, the company that my partners Daniel and Brandon had built. But those firms weren’t in on this deal with us. We were on our own for the first time, with only the diligence we did and the conviction we developed in Rilla’s founders, who had come from the unlikeliest of places.
Since then Rilla has become one of the fastest growing startups in NYC, and is the category-defining company in sales coaching software for the physical world. And it is the best investment I made in my career as a venture capitalist.
Last week I closed an incredible chapter at Crew Capital, stepping back from what was a 5-year run at the firm - starting as an associate and leaving as a partner after having helped build the firm from the ground up.
This essay is about what venture capital taught me, why the venture industry matters, and why I chose to leave it.
The “Job”
Venture capital may be the best job in the world.
At its best, practicing venture capital is about spending time meeting with some of the smartest people in the world, listening to their ideas for a business they are so enamored by that they’ve chosen to throw away any semblance of balance in their life, any professional cachet they’ve established, to go off and do this thing that has an overwhelming likelihood of failure.
Founders do all of that with the knowledge that almost any alternative professional use of their time would be more financially rewarding on a risk-adjusted basis, while also being less stressful. Yet they pursue it anyway, because of a dogged passion and a belief their idea has a chance to improve the lives of their potential customers - even in ways that might seem small and boring to outsiders.
And your job - really the entire job of a VC - is to find those people, decide you believe in them, and give them the capital to go try.
If you’re thinking to yourself - please, I know venture capitalists and the job is far more cold emailing, gossiping, deal chasing, and momentum investing than any of what Dylan just described - trust your instincts.
Most of the time, the job is a far cry from any of that.
During my time as a VC, I saw a few thousand startups a year, met with around 600 each year, and invested in 4-10 annually. Run the math - 99% of the job is telling people “no”, which never became easier for me even after 5 years.
That plus a lot of cold emails, constant following up, and sitting through pitches where we both knew it wasn’t a fit but were too polite to end the meeting early. And then there is my “anti-portfolio”, or the deals I passed on that turned out to be great. It’s much larger than I’d like to admit - but I’ll save that for another post.
But when it works, and you meet a founder whose story and vision “clicks” - it is incredible. For a curious person, there are few greater sources of intellectual stimulation than learning about the frontier of technology from those on the cutting-edge. Calling it work is probably an injustice to actual work that doesn’t involve just doing things like networking, reading, and thinking.
That is the personal experience of the job, but as a student of the game of venture, the thing I came to appreciate is how much more important the system is than any one person’s experience.
From New Bedford to Silicon Valley
As Jeff Bezos put it, the primary reason why America’s economy is so dynamic, why the big tech companies are all here, why there is so much entrepreneurial success in the US, is the system of risk capital.
That system of risk capital Bezos talks about is the modern venture capital industry. It’s a system of norms, relationships, systems, and behaviors that funnels excess capital into unlikely ideas with asymmetric payoffs.
One of the incredible and underrated things about this system is that it’s existed for far longer than most people - even in the industry - realize or give it credit for.
VC: An American History is an incredible book that traces the system of risk capital back to the early 19th century. The first industry that this system gave rise to? Whaling.
Whale oil and whalebone were in massive demand during the industrial era of the mid 1800s in America. But catching a whale involved significant risk - small crews had to catch huge whales in freezing waters, risking drowning, capsizing, and worse. And it was expensive to buy a boat and pay a crew to risk their lives.
Whaling agents acted as intermediaries between investors with excess capital seeking high, uncorrelated returns. They charged fees and a share of the profits in return for coordinating with a ship captain and his crew. Whaling agents sought to build relationships with the best captains, engaged in repeat business with them, and built a portfolio of whaling excursions to spread risk. The best ones earned persistent returns over time, and those returns were governed by a power law - many expeditions would end up returning nothing, but the most successful returned life-changing payouts.
Sound familiar?
That system of risk capital transformed the center of the whaling industry, New Bedford, Massachusetts, into what the NY Times described as “probably the wealthiest place in America”, with an average per capita wealth of $35k in 1853, equivalent to $1M today.
The same factors that built the risk capital system around whaling - a cultural affinity toward entrepreneurial risk, the pursuit of capital gains, and an embrace of the lopsided outcome dispersion - are the same ones that undergird the risk capital system that Benno Schmidt first called “venture capital” in 1946.
And the results speak for themselves. The five most valuable companies in the S&P 500 - NVIDIA, Alphabet, Apple, Microsoft, and Amazon - which collectively account for nearly 30% of the S&P 500, all received venture capital financing in their early days.
If capitalism is the engine that created the modern economy, then the system of risk capital is the set of pistons converting the energy of excess capital into the mechanical motion of innovation that moves the world forward.
The Cost of Depth
If you’ve made it this far and are asking yourself how much longer is he going to go on saying venture capital is the greatest thing ever - I’m done.
There are plenty of issues with the industry.
However many of the issues associated with the industry are actually caused by its enormous impact on the economy. VC has been so spectacularly successful since its modest origins that a byproduct of that success has been massive growth in the number of firms, the amount of capital, and the number of people working in VC. That growth is an output of the industry's success, not an input, but it has real consequences.
Unlike many people, including many VC’s, I do not believe there is too much capital in venture. I don’t think fewer startups should be funded.
But there are certainly too many sources of capital. Too many venture firms with undifferentiated pitches crowding into the same deals, which drives up valuations, and exacerbates cyclicality. In the most heady times, like the ZIRP era of 2021 or the dotcom bubble (and maybe today?) - that leads to a misallocation of capital into relatively unproductive uses.
Worse, it leads to companies getting over-funded. As Bill Hewlett of Hewlett Packard said, “companies often die of indigestion, not starvation.” Taking on too much capital can lead companies to over-hire, lose focus, and provide a worse customer experience. Any investor who was active in 2021 saw this happen to companies in their portfolio.
And yet. The fact that we have rockets that can land themselves, computers that can reason in natural language, and are on the cusp of energy abundance - is in large part attributable to the fact that there is so much capital willing to be put to work behind the entrepreneurs dedicating their lives to these ideas.
Indeed, much of the growth of the VC industry in the last few years has been a direct reaction to the capital requirements of the AI labs. And even then they’ve outgrown the industry and turned towards raising from the mega cap tech companies.
The system is imperfect. But the imperfections are worth it for a risk capital ecosystem deep enough to fund the ideas that change the world, and magnetic enough to attract people from everywhere who want to build them.
Elevated Ambitions
One of the best parts about my time in venture is the relationships with the founders we invested in.
The founder-VC relationship is unique. A lot of people try to analogize - but it’s not a friendship, it’s not a boss-employee relationship, it’s not an agent/client relationship. Any metaphor misses it.
At its core, the best version of the relationship is a shared vision. Before the investment, a mind-meld takes place where you align on the hypothesis for an outcome you both want to see in the world, and you both believe the startup can deliver if it executes effectively. The VC provides capital, a network of relationships, and serves as an accountability partner as the founder works towards testing that shared hypothesis. And along the way, as Ed Sim puts it, the best VCs know when to cheer on, when to chill out, and when to challenge the founders they work with.
Tyler Cowen once wrote, “At critical moments in time, you can raise the aspirations of other people significantly…simply by suggesting they do something better or more ambitious than what they might have in mind. It costs you relatively little to do this, but the benefit to them, and to the broader world, may be enormous. This is in fact one of the most valuable things you can do with your time and with your life.”
What Cowen doesn’t say, and what I learned over 5 years of doing this, is that the best version of this runs in both directions, at least when it comes to investors and founders. The best investors raise the ambition of their founders. The best founders raise the ambition of their investors. You push each other, and make each other sharper, more honest, more demanding…better.
The founders I worked with made me a better investor, a clearer thinker, and a more convicted partner to the next founder I worked with.
The Other Side
So. If it’s so great, why’d I leave?
Because at the end of the day, venture capital is portfolio management. You construct a portfolio of investments, hoping that some pan out, while knowing that most won’t. You diversify. Then once you get greater signal about which companies have the potential to be big, you double down and deploy your fund’s reserve capital into them. That reserve allocation is one of the things most people don’t realize separates the venture greats like Peter Thiel and Fred Wilson from everyone else.
Even before I was an investor, and I was working as an analyst on Wall Street covering software stocks, developing conviction in an idea was never the hard part for me when the data and my intuition told me it was the right call to make.
I have that conviction today. I believe that AI is going to be a decade-plus tech super-cycle, and that it will last longer and be more disruptive - even than most investors give it credit for. I think the models will keep getting better faster than people expect, even if we don’t get full ASI. I believe the rollout across industries will take years. And along the way, there will be macro cycles - but many, many great companies will get founded and funded.
Five years of watching founders bet everything on what they believe taught me more about conviction than any job ever could.
I want to concentrate into one company, and get hands-on building experience at a time where the very definition of what it means to build is changing. I’ll be sharing more soon.
For now, I’m grateful to my partners for empowering me to help build Crew with them, for the amazing LPs who allowed us to steward their capital, for the founders I’ve worked with who trusted me to be part of their company’s story, and for five incredible years in venture.