The Ledger
Every statement that passed quotation and attribution checks. Mix any filter with any other: certainty 1/5, debate potential 5/5, or both at once.
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Shah: Team quality is far more important than market in VC
“Like, there's this canonical question, I think, in our industry. Is it the market or is it the team, right? And I think many great firms would argue that it's market. In my view, it's very clearly the team.”
Shah: Pattern recognition and VC benchmarking are exercises in psychological safety
“There's so much long tail risk in a company that I feel like the exercise around pattern recognition benchmarking as just like two examples, risk mitigation as a third are exercises in psychological safety.”
Shah: Total addressable market calculations are a trap for venture investors
“TAM is a trap. Like, go back and look at the S-ones of some of the biggest public companies today. Their market caps are bigger than what they thought the TAM would be.”
Shah: VCs fail by picking wrong investments, not overpaying
“But when I think about conviction in people at the earliest stages I think you can be really elastic on price. At late stage, if you have conviction, price is just a representation of like future expected, expected free cashflow, right? So you're probably not …”
Shah: Follow-on rounds require rebuilding the investment case from scratch
“So I'm not thinking about averaging down my cost basis. I'm not thinking about incrementally increasing my ownership. I'm building a net new investment case on, can I create, you know, a fund returner? And with that, like I do all the work again. So if I think…”
Shah: Index Ventures targets 5x upside on late-stage growth investments
“It's super dangerous. I think to say there's a safe two X, there's no such thing. And you alluded to this with the memory of all of the activity from 2021. There's no such thing as a safe two X. And so what we're looking for is definitely five X plus upside, e…”
Shah: Wiz grew faster in four years than any company ever
“Bottoms up, the, you know, the business in, in, in four years, the company has grown faster than any company of all time with unbelievable productivity in different segments, in different geographies.”
Shah: Power law returns trigger partner egos that fracture VC trust
“It's especially hard in a venture firm in light of the power law, right? Again, very few companies are going to Create returns, which means there's likely to be concentration among different investors. Which suggests that you can have a skew of ego or insecuri…”
Shah: Best ZIRP founders under-grew while VCs missed liquidity windows
“For founders, like the best founders probably didn't grow aggressively enough. For investors, investors probably didn't maximize liquidity opportunities.”
Shah: Assimilating to firm norms sets VC investors up for failure
“If your goal is to be the best version of yourself and your firm's goal is to be the best firm on the planet, there's no room for assimilation and confirmation, right? Conforming to other norms. So I think it's absolutely wrong. I think if you try to assimilat…”
Shah: Returning the fund is the only career metric that matters
“The game on the field, if you're a venture investor, is to invest in a fund returner. If you return the fund, don't worry about it.”
Shah: There are no predictable human patterns for successful founders
“When it comes to patterns of selection and patterns within people, The only pattern is there is no pattern.”
Shah: Index Ventures' three rules to avoid missing generational founders
“The sins of omission for us distilled into three lessons. One don't be cute on price. Two don't overthink it. Three don't pass on generational founders.”
Shah: All Index investments in Datadog and Wiz were high priced
“Every investment in Datadog I was at a high price every, it's not an outcome yet, of course, but every investment in Wiz has been at a very high price. I feel great about each of those decisions.”
Shah: Datadog co-founder Olivier Pomel was initially not a great fundraiser
“When we invested in Olivier and Alexi Series A at Datadog, so he was not a great fundraiser.”
Shah: Sins of omission matter more in VC than sins of commission
“I really think that the sins of omission Are much more significant than the sins of commission.”
Shah: Seed investors use signaling risk as a tactical objection
“In the seed market most seed investors are using signaling as part of an objection to work with a multi-stage fund.”
Shah: Founders should avoid party seed rounds due to coordination overhead
“Like I definitely don't encourage founders to have like a party round. It ends up being, An exercise of herding cats.”
Shah: Founders should avoid taking angel investment from customers
“Don't take money from customers, right? It's fraught with a conflict of interest.”
Shah: VCs should sell immediately if a founder is unethical or incompetent
“If you come across an entrepreneur who you believe is on the spectrum of unethical to incompetent, you should sell immediately.”
Shah: Describing founders as 'A-plus' without substantiation is VC BS
“It really irritates me when I hear, ah, investors say it's an exceptional founder, ah, an A-plus founder, without any, like, specificity or substantiation.”
Shah: Index Ventures requires two partners for every founder meeting
“Every meeting ideally would have two people in it. So that's a super high bar for taking Any meeting, like I'm asking to prioritize someone else's time in addition to mine, which means the threshold for a meeting is super high.”
Shah: Index Growth Fund returns followed power law over mid-tier multiples
“When we started our first growth fund our hypothesis was probably three to five X over three to five years, right? I'd just come out of a private equity firm as had some of my colleagues. And so we had like a, we had that mentality. And when we looked at the p…”
Shah: Index Ventures makes Series B investments only by exception
“If we're making a series B investment, it's by exception, like elastic. Series B investment. Terrific return. Confluent. Series B investment. Terrific return.”
Shah: Functional software leaders command over 20% market share
“If you think about most software, like functional software areas, the market leader commands north of 20%, 25% market share.”
Shah: Walking meetings are highly effective for team conflict resolution
“When you have a disagreement or challenging conversation, walking like movement plus heading heading in the same direction can actually be really stimulating. So it's actually a really good tool.”
Shah: Index offers to underwrite seed rounds while splitting allocation
“Generally when I meet a founder at a seed stage, I'll tell him or her, I'll underwrite the entire round. So there's no financing risk, but We should split it into three sleeves. One sleeve is for index, one sleeve is for a seed fund, and the third sleeve is fo…”
Shah: Doug Leone is a great board member due to his intuition
“Doug Leone. Great board member in a very, very different way. ... Doug is incredibly intuitive. He can inspire confidence in, in a decision which is really, really different.”
Shah: VCs should buy and hold power law winners
“The goal is to buy and hold and let other people help inform like when to sell. So, and that's true for kind of the winners that make up the power law contributors, which is the business that we're in to find fund returners for like.”
Shah: Power law lets VC firms survive market cycles longer
“Given it's such a, and the industry is so driven by the power law, like, I think people can withstand cycles longer than we probably give them credit for.”
Shah: Misjudging capital intensity caused his biggest investment failures
“And so I overestimated like uncapped market upside, underestimated the capital intensity of a company. Voted in favor with high conviction on the investment, and yeah, I think one of my partners is doing a great job of finding a path to, you know, returning ca…”
Shah: Index distributed stock position one week after $1B acquisition
“We're a large investor in a company. We invested early stage company got acquired for about a billion dollars by a public company. And within a week of receiving our proceeds I asked our team to distribute the whole position.”