Specialists and generalist investors
Just like companies have majors (the place where they truly spike) and minors (the areas where they’re good but not hugely differentiated or special), so too do venture funds and individual investors.
At a specialist fund/for a specialist investor, the sector or theme is the major and "underwriting" or "venture capital" is the minor. That is, a true specialist thinks more about fintech or cybersecurity or robotics than s/he does about venture investing overall.
For a generalist firm/investor, the major has to be investing (the process, the underwriting, etc.) with several minors in the various sectors or themes you care about. A true generalist might spend more time thinking about how to make good investments than about any one particular sector or idea on its own.
The advantage of the specialist is that they’re much closer to the metal with more context on their category to know what’s true. But they need to make bets in their lane even when the highest EV opportunities may be elsewhere. It’s a huge bet that you’ve not just picked the right speciality today but also that it will be persistently right. Switching midstream is hard but certainly not impossible. And they have a tendency to miss the forest for the trees.
The inverse is true at a true generalist fund/for a general investor: generalists risk making clever bets that miss key context within a category. Being a generalist also carries the burden of needing to see everything and always have a take.
At a platform or pod shop (ideally), the top thinks about investing as a major while the pods cover categories as their majors. The groups rely on the received principals/wisdom for how to make investments and pick opportunities, with sizing across groups dictated top down based on where the highest expected value opportunities lie overall.
But in practice, the top of the platform thinks about the business of running a fund and that - asset management - becomes their major. The business of the firm becomes the received wisdom from the senior managers at the expense of unified underwriting principals.
So what? How do you choose?
There’s no generally right or wrong answer on who to raise from as a founder, be as a VC, or back as an LP. It can all work as long as the needs and expectations match the goals and abilities. The answer overall is likely that balance is good and honest reflection is better.
Who to raise from (as a founder):
How much do you care about a VC being connected to customers and having views on your product vs being a sounding board on running/building the business? As ever the dichotomy is between advising on your product vs your stock. The nice thing is you may be able to get both by mixing up your cap table between a lead and other smaller investors.
Who to be (as a VC):
This is more clear cut and comes down to skill set, resources/network, background, and interests. There is just no world in which I could ever be a true specialist, at least not a good one! I’m obviously not deep enough on anything and I think the best companies come from all over. Conversely there’s plenty of people who just don’t care about the heuristics for venture as much but are dogs at chasing down great people and ideas in certain networks/categories.
Who to back (as an LP):
The important question is whether you can build a long term franchise as a specialist without ever (even tacitly) expanding to be a more generalist platform? Will this sector/theme do well across cycles or is it merely the narrow end of a fat wedge to get going. There are