Venture Capitalists are NOT Sheep.
Setting the animal comparison record straight
You may have heard (wrong) that VCs are sheep. We’re not. Not even the baaaaad ones. We aren’t herd animals at all. Here’s why people think (wrongly) that the VC ecosystem is home to herd animals. They think that VC investing is the same as copy-trading. It’s really really not. It’s almost the opposite.
I saw a post on LinkedIn where someone was selling services to help founders pitch. It was saying something to the effect of “How to use the fact that VCs are sheep against them.” I’m not going to get into all of the layers of things fundamentally wrong with that whole approach. Let’s just focus on the sheep part.
I’m going to assume we’re talking about good VCs. Because why would you want to pitch to a bad VC when there’s plenty of early-stage capital you can get from other non-VC investors? The whole point of having the VC in the first place is that we add some type of long-term value beyond the initial check. Maybe that’s improvement of product market fit. (Not merely finding founders who can find it). Maybe it’s reserving capital to follow on with much bigger checks. It’s usually both.
You might think that VCs only invest when other people are investing. But actually, the VCs I surround myself with are very strict about bringing their own conviction to the table. GPs consistently insist that anyone bringing a deal to a partner meeting is also bringing their own conviction. This is a no-sheep allowed policy. Some entire funds even break rules like “Don’t dream for the founders” and “don’t pull the founder’s levers” by incubating startups. Sheep don’t do that. Sheep aren’t even outcome-focused. VCs are concerned about investing in teams with solutions that they can build toward an autonomous exit. This is contrarian stuff. These aren’t sheep activities. Sheep look for what the herd is doing.
But what about follow-on VCs? Let’s say we’re talking about traditional VCs who often co-invest and follow on. This is a solid Venture Capital strategy and it’s not uncommon among great VC funds. A follow-on strategy is not at all conducive to a herd mentality either, because to a good VC, other investors investing never counts as traction. Any reputable VC is going to look at customer traction, user traction, and more importantly founders and team. A herd can’t fundamentally understand founders nor team. Follow on VCs keep up with founders and help them build companies. Follow on VCs are company builders, long-term partners, and contrarians. Sheep are not. Sheep don’t lead and follow on VCs often lead follow on rounds.
You know who I think are herd animals? Sentiment traders, copy-traders, and a lot of retail public markets investors who consider market sentiment more than the fundamentals.
A herd simply follows what has been done before or copy trades Nancy Pelosi’s stock portfolio. A herd doesn’t boldly go where not too many have gone before, venturing into new territory. Herd is fundamentally the opposite of venture. Save the sheep comparison for Wall Street sentiment traders. Not everyone is a bull. A bull is a herd animal, so I think a prominent Wall Street investors have self-designated what type of herd animal they are. To be fair, the fundamental public markets investors are bulls not sheep.
So what type of animals are VCs then? We’re not pack animals like some of these PE/M&A/takeover type investors. By now maybe you want me to just say it. Fine. I think we’re pod animals. We’re dolphins. I consider myself to be more of an Orca type dolphin. Yes, Orcas are dolphins. Venture is a team sport, so we move together based on conviction that is initially built by an individual in the pod. We look out for each other and have fun. We help each other understand what we learned. Pack animals and herd animals don’t do that. Are you gonna trust a sheep to spot an iceberg or an Orca?
