The Delusion Requirement
On why starting a venture firm right now is irrational, why the right people do it anyway, and episode two of Carry On with Santosh Sankar
I’ve had one improv class (maybe two) in my life, usually at a Kauffman Fellows module. There is a rule they teach you in the first week of improv, before you are allowed to try to be funny. Two people walk onto a bare stage with nothing. No script, no set, no idea where any of it is going. The first person makes an offer, and it is usually a bad one. The scene does not survive on the quality of the offer. It survives on whether the second person accepts it and adds something. Yes, and. I’m sure you have heard of it. The moment somebody blocks, corrects, or waits for a better scene to arrive, the whole thing dies where it stands.
I have been thinking about that rule since Santosh Sankar and I sat down to record the first three episodes of Carry On. Santosh opened with the math. Over the last couple of years, something like 75 percent of everything LPs put into venture went to the top thirty funds. Everyone else, and that is not just emerging managers, that is everyone else, split the quarter that was left. Then he asked the question the math begs for: why would anyone start a venture fund right now?
My answer, on the record, was that you have to be delusional. Not kind of delusional. Definitely delusional. And I meant it as a compliment, because delusion is the exact trait we screen for in founders. Someone who can see every problem in front of them, assess all of that information honestly, and still expect to be the exception. We ask founders to carry that contradiction every single day. Starting a venture firm is just finally taking your own medicine.
Santosh has a story about this. A few years into building Dynamo, his wife looked over at him and asked, casually, so you think this is going to work? Then she answered it herself: what a dumb question. Of course he believed it was going to work. Why would he be doing it otherwise? Your self belief is a different thing from the actuality of what happens. Holding both of those at once is the job.
But delusion alone is not a strategy. It is noise with confidence. The thing that has to sit underneath it is a why, and this is where the episode got uncomfortable in the useful way. An allocator friend of mine recently passed along what another allocator told her: she needs one more venture firm the way she needs another bullet in the head. That is the room every new manager is walking into. Your why is not marketing copy for that room. It is your right to exist in it.
Differentiation is the same conversation wearing a suit. It is the word we all use and never define, and as this industry matured it collapsed into a sterile monoculture: identical websites, identical value add, identical posts, everyone quietly afraid that the tallest flower gets cut. Real differentiation is not a slide. It is the compounding of all the small ways you approach the craft differently. A 24 hour response rule. How you actually run diligence. What you still do for a founder in month nine that you promised in the first meeting. Most of us are some shade of blue. The work is knowing exactly which shade you are and saying it out loud.
We also get into the part I keep having to relearn: none of this works if you wait to be perfect. Somebody prominent in this business, I heard it secondhand so I will not name them, said the optimal level of cringe is not zero. The best firms right now, as Santosh put it, operate like media companies with investment capabilities attached, which means the reps are public, and some of the reps are bad, and the bad reps are where the feedback lives. That is improv again. You do not get to workshop the scene in private first.
There is more in the episode than I can carry into one essay. Sam Heshmati of Citizens Private Bank joins in the middle and traces the white glove lineage from First Republic, which is itself a case study in a why surviving a change of jersey.
So here is the ask, same as last time, because it worked. Listen to the episode. Then tell us where we got it right and, more usefully, where we did not. Reply to this post, comment wherever you listen, or send me a note directly. If there is a question about this craft you think two GPs owe you a straight answer on, that is how episodes get made.
The cards are stacked. The scene starts anyway. Yes, and.
Grateful to AngelList, WilmerHale, KPMG, and Citizens Private Bank for backing this from the start, and to the Heard Media team for turning two people talking into something worth your time.
with gratitude,
Earnest
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