34. "The Discipline of Conviction" (ep. 8 of the series "101 VC Core Principles")

Welcome to episode number eight of our series called “One O One VENTURE CAPITAL CORE PRINCIPLES FOR NEW LPs, WILLING TO UNDERSTAND HOW VENTURE CAPITAL REALLY WORKS”…Let’s dig in.First, number 29VC firms use a shared vocabulary to discuss common emotional traps to prevent them, such as “separation of church and state”.VC firms need a common vocabulary because emotional mistakes are easier to see, name, and correct once the firm has a shared code for them. “Separation of church and state” is one such code: it tells the team to separate admiration for a founder from the cold investment case, just as top firms use scout programs and written memos to keep judgment anchored in process rather than chemistry.Second, number 30“Separation of church and state” is the discipline of preventing the emotional “thrill of the chase” (falling for a founder) from clouding clinical decision-making.The “thrill of the chase” is dangerous because charisma can masquerade as signal, especially when a founder is unusually polished or the company feels culturally magnetic. A useful counterexample is Revolut, where George Robson has described being drawn to the founder and product while at Morgan Stanley, but only later joining Sequoia once the business case and timing were clearer, showing that attraction is not the same thing as conviction.Third, number 31The earliest indicator of good investment judgment for a new investor is how they choose to invest their time.The earliest tell of good investment judgment is not the pitch they like, but how they allocate their time before a pitch turns into a decision. Bessemer’s public anti-portfolio shows why this matters: they preserved institutional memory by writing down what they missed, which is only possible if investors spend time on pattern recognition rather than merely on meetings that are already obviously hot.Finally, fourth, number 32Investors who tend to achieve “base hits” instead of “grand slams” are coached to take more risk to achieve the necessary asymmetric upside.If an investor keeps producing base hits, the remedy is usually not more caution; it is a higher tolerance for asymmetric risk, because venture rewards outsized winners, not safe singles. Accel’s early commitment to Facebook is the right mental model here: the firm backed a company with enormous upside while many investors would have preferred a more familiar, smaller idea, and that willingness to lean into scale, not incrementality, helped create a generational fund outcome.Stay tuned for our next episode, and meanwhile, you can reach out to us, Vertices Capital, on our website: vertices.vc.Thank you for listening. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit verticescapital.substack.com