Are you early … or are you last?
The other day, a friend and I were chatting with an emerging manager who was feeling something they hadn’t felt before.
It was the sting of losing. Startups they wanted to invest in but the founders decided to go in a different direction.
Now, no one likes to lose out on a round they want to invest in.
But I actually think that those losses are a good signal for this emerging manager. Because it means they’re moving through the 3 stages of deal flow evolution.
Stage 1: You’re winning (but you’re not sure why).
You’re getting into the deals you want. Founders are happy to have you. It feels good.
But what you probably don’t have the full picture on is:
Are you early … or are you last?
Stage 2: You’re starting to lose.
Whatever the reason, you’re not winning every deal you want anymore. Just like that emerging manager I just mentioned.
Maybe it’s that a round moved too fast.
Maybe you knew the founder, and they never called you when they got a pre-emptive term sheet from another firm.
Maybe the founder just didn’t want you on the cap table.
This stings. But it’s a (good) signal. You’ve gotten yourself into rooms you weren’t in before.
Stage 3: You want to win every time.
You’re seeing everything in your space and you have a legit shot at winning every single time you decide to compete.
But like in the previous stages, you still have no idea how your picking will pan out.
That’s why this could be the most dangerous stage of them all.
