Why Most VCs Run Funds But Few Build Lasting Firms

Funds vs. Firms: A Core Distinction

• 💡 David Haber's framework differentiates between running a fund and building a firm, noting that funds become fragile as they scale by focusing on deal-chasing.
• 🎯 Firms operate like entrepreneurial ventures, prioritizing defensible moats, investing in technology and data infrastructure, and employing decentralized decision-making.
• 🔑 The goal of a firm is to build an institution that lasts, outliving its creators, unlike funds which may not have long-term sustainability.

Building a Lasting Venture Firm

• 🌱 Creating a firm requires intentional effort, focusing on human capital strategy, developing talent beyond just investors, and establishing a strong culture and philosophy.
• 📈 Limited Partners (LPs) often prefer to underwrite firms with long-term plans, as they represent more stable and enduring investments.
• ⚠️ Venture firms frequently fail due to leadership transitions, highlighting the challenge of replicating success across generations.

The Role of Platform Services

• 🚀 Platform services can serve as competitive moats for firms, offering valuable resources to founders in areas like hiring, marketing, and scaling.
• 🔍 While many funds offer platforms, their actual value and accessibility to founders can vary, often functioning more as marketing tools than consistent support.
• ✅ Founders should consult other portfolio companies to assess the true availability and usefulness of platform teams, especially those in the middle tier, to determine if the services are genuinely hard to replicate.

Maintaining Relevance in Venture Capital

• ⚡ Sarah Guo's "relevance decays" concept emphasizes that venture investing is time-dependent, requiring constant active market engagement to stay current.
• 🧠 Investors must reason from first principles rather than inherited pattern matching, particularly in rapidly evolving sectors like AI, where validation timelines are compressed.
• 📌 Success can lead to complacency, making it crucial for even established investors to continuously earn their relevance and avoid relying solely on past achievements or networks.

The Privilege of Belief in Early-Stage Investing

• 🔑 Michael Dempsey's framework highlights three types of belief: vast belief in thesis, belief in asymmetry for outsized impact, and most importantly, belief in people.
• 🤝 True belief means trusting founders' judgment and intentions over the long term, even when operating with incomplete or no data.
• 🚫 Investors should avoid projecting their own anxiety onto founders, recognizing that belief involves supporting them through challenges without over-involvement.