VC Incentives

Hey y’all — I’m looking to write case studies about founders who’ve raised money from VCs. So far I’ve interviewed and written them about over 30 founders, and will be sharing them soon.

If you’d like to join the project and have a convo with me, reply and let me know.

Here’s today at a glance:

🔗 Houck’s Picks

• Embed generalists in your startup to scale right away with of All Trades*

• An investor looking for more pre-seed and seed deals to review (Link)

• How to build a pitch deck (Link)

• A unique fundraising tip for founders (Link)

• The 3 provisions in a term sheet worth negotiating (Link)

• How to get investor intros (Link)

• An easy but impactful thing you can do for your new users (Link)

💡 Opportunity: AI Password Manager

Most founders still aren’t appreciating the degree to which AI makes old industries disruptable from first principles.

Password managers. Nothing new happening there, right? LastPass and 1Password are both almost 20 years old.

But pretty soon you’re going to have a bunch of little AI agents trained to do specific tasks running around in the background.

Are they going to ask you to input a password every time they need one?

That UX sounds awful.

I could see an AI-first password manager that exposes an API that approved agents can interact with. You’d see a history of requests and uses from each agent.

If someone builds this it’d probably be a pretty good acquisition target for one of the existing players.

🧠 Framework: One Person, One Problem

I love this advice from Peter Thiel:

Only assign one thing to each person on your team at a time.

Make them maniacally solve that one thing before doing another.

We all know switching costs can be hard to manage as founders — they’re hard on your team too. Most people aren’t equipped to deal with the intense switching costs that are common at a startup.

But it doesn’t have to be that way.

If you want to have someone solve a hard problem, don’t give them any other options.

Thiel’s insight, as Keith Rabois explains below, is that if people are given options they will tend to spend their time solving less important problems because they want to demonstrate progress.

They’re your employees and they want to justify their paycheck by showing you some results.

Make sure those results are for the things that will most meaningfully drive the business forward.

📈 Trend: Dumb Phone

In the early days of Shark Tank, a product called NoPhone pitched the sharks.

The idea was simple. To help cure “phone addiction” you could carry around a NoPhone.

It wasn’t a phone, it was a plastic brick that was shaped like an iPhone. It had no features and did nothing.

That may have been the extreme version, but the “dumb phone” trend is actually growing.

Mostly popular with Gen Z, the trend involves buying an older, less-feature-rich phone that is basically only useful for calling and maybe texting.

The appeal is to stop looking at your phone and instead spend more time engaging with the world around you.

💬 Quote: VC Incentives

VCs live in a cutthroat world.

No, really.

There are only a few true breakout companies each year, and a limited amount of desirable jobs in VC to find them.

As a result, VC behavior is entirely driven by the incentives governing success in the role (i.e. finding and backing the winners).

Before a VC invests, they’re incentivized to gather as much information about the opportunity as possible. The quickest way to do this is to show intense interest to the founder.

You’ll never have trouble building a relationship with a VC if they’re interested in what you’re doing.

But once they decide for sure that they don’t want to invest, they pull back and move on.

And this continues even after they invest — if your startup is failing and the VC is writing it off as a losing investment, they’re not going to go down with the ship with you. They’re going to spend time helping their potential winners.

It’s a tough pill for some founders to swallow, but it isn’t personal — it’s just the nature of the game on their side.

💡 How I Can Help

🚀 Advertise in this newsletter to get in front of 75,000+ founders.