The Cheerleader and the Coach
My thoughts on how to act as a young investor in the current market reality
From my experience there are two types of investors.
The Cheerleader investor is one who is always positive, quick to congratulate and loath to have hard conversations.
The Coach investor is more skeptical, is comfortable guiding (sometimes instructing) founders and prefers to focus on what’s not working as opposed to what is.
I think this categorization, while an oversimplification, does a good job in representing the venture capital industry over the past few years.
More often than not, cheerleader investors tend to be younger whereas coach investors are more seasoned. This shouldn’t be surprising.
Young investors (yours truly included) have only experienced positive market sentiments thus far in their careers. And if your mental model has been trained almost exclusively on a data set of companies that simply continue to raise capital and grow, what is there to do aside from cheer?
Alternatively, if this isn’t your first rodeo, it’s much easier to proclaim R.I.P. good times.
Venture Capitalists find themselves at an important crossroads. Founders are turning to their investors with questions and concerns due to current market conditions.
And the question I keep asking myself is: what type of investor do I want to be?
Home Court Advantage
Cheerleading, for whatever reason, has negative connotations. A cheerleader is someone who doesn’t actually play the game, someone that remains on the sidelines. Cheerleaders are considered non-essential.
So when thinking of successful investors, a cheerleader is probably pretty far down the list of analogies that come to mind.
But I think it’s time for a rebrand. Perhaps a cheerleader is more important than meets the eye.
One of the most well known phenomena in sports is home court advantage. While relatively self explanatory, this is the concept that playing a game in front of a home crowd provides an inherent advantage towards winning the game.
While the statistics around this are quite shaky and ultimately the best team (usually) wins, intuitively this makes sense.
A home crowd (aka: a stadium full of cheerleaders) infuses their energy into the players on the court.
During difficult moments throughout the game when players need to dig deep to push past their fatigue, the encouragement and support of their fans can propel them forward.
And indeed this is the mission of the cheerleader investor. Not to blindly cheer for their founders, but rather to help inspire them when they need an extra boos of energy.
To provide them with home court advantage.
Coaching Matters
As opposed to cheerleading, I think everyone agrees that coaching matters. Coaches are an essential part of the success, or lack thereof, of whatever team they are a part of.
“Coach of the year” is a prominent award, and as opposed to cheerleaders (whether actual cheerleaders or fans that provide the cheers), they are compensated quite handsomely in major sports leagues.
Of course, there are different coaching styles.
Some are X’s and O’s driven - strategic minds that provide frameworks for players to use in order to defeat their opponent. I call this the Coach Pop style.
Some are effort driven - hard-nosed individuals who motivate their players to have the right mindset. This is Coach Carter style.
No matter which style though, the mission of the coach investor is to be the “adult in the room” and help founders act in the right way.
Being an Investor in 2022
I’ll be the first to admit that it’s easier for me to be a cheerleader investor than a coach investor. I began my career in 2014 and thus serve as the classic example of the young cheerleader investor described above.
(I personally believe that this is a combination of nature as well as nurture, but that’s neither here nor there.)
That being said, it seems to me that the best investors are both cheerleaders and coaches, and manifest either quality depending on the situation.
The truly great investors are the ones that are able to quickly decipher which situation calls for which archetype.
Which brings us to the current market climate.
The fact of the matter is that as market sentiment has changed swiftly, founders I work with have turned to me for advice. And while I may be more of a natural cheerleader, suddenly I felt the urge to unleash the coach investor within me.
But I’ve been questioning that urge for a few reasons.
First and foremost, I’ve never been through this before. I was eight years old and playing with Pokemon cards during the dot com crash, and in 2008 I was a junior in high school1.
Secondly, it doesn’t take a genius to understand that when market sentiment turns bad and fundraising gets harder, companies should extend their runway and focus on unit economics2.
But it’s easy to get caught up in the doom and gloom being reported on by the media or the absurd amount of twitter threads letting everyone know how this is the worst market in over two decades.
So yes, what founders actually need in times like this is mixture of both.
To be best prepared to make it through tough times they need a coach who can help guide them, be judicious and prepare for the worst.
At the same time, it is precisely during difficult times that founders need to know that you have their back. And while it may sound trivial, I think that what founders may actually need most right now is someone to be their cheerleader. Someone to tell them: “you got this”.
In fact, I’ve found that I need this myself as well.
So while all investors have a coach and cheerleader inside of them3, for now I’m choosing to lead with the cheer and let the coach interject when needed.
Other Stuff
While that ends the blog post, it does occur to me that some of you might be looking for some good content to consume on the current state of the market.
I’ve put together a quick list of links that I’ve found interesting.
The Acquired Podcast interview with the CEOs of Veeva and Zoom on being capital efficient
This is an interesting point that’s worth discussing. How can you be a coach investor without having experienced the situation you are meant to be coaching. There are two answers I’ll suggest. First, as a young investor, I have the responsibility to lean on the advice of those who do have that experience. I’m lucky to have fantastic mentors in my father who was an executive and CEO during several different market realities as well as the Partners at TLVP. Second, you don’t need to look further than the NBA to see that experience in playing the game you are coaching isn’t a necessity to being a successful coach. In fact, 47% of NBA coaches never played in the NBA.
That doesn’t mean it’s not sound advice. It is!
It’s not lost on me that the one archetype that may be missing from this cheerleader and coach analogy is the player investor. This might warrant a separate post, but for now I’ll simply say that I don’t believe it’s an investor’s job to be a player. If you’ll allow me to take the basketball analogy too far, a player investor might be able to knock down a three every once in a while, but will likely be a liability on defense and mostly a statue in complex offensive sets. In the NBA that’s called a G-Leaguer.