Naval: It’s easy to overestimate your own judgment. It’s perfectly OK to say, “I don’t know.” That should be your answer most of the time.
There’s only a few deals where you should say, “I have conviction.” And, even then, be careful how much conviction you have.
At the seed stage, if you put a lot of money into one company and very little into another, that begs the question: “Do you really have conviction, or do you simply have better access to one deal?”
Generally, the better the deal, the less access you’ll have.
Always try to get your standard bite-size
If you put a lot of money into a few deals and little money into many others, you’ll find that your winners tend to come disproportionately out of the deals with little money invested. And that will hurt your portfolio return.
Once you have conviction, always try to get your standard bite into that deal. If a deal has too much space for you, that means: Either you should invest more in other deals or less in this one, or you should get rewarded with a lower valuation because you’re creating the signal that the company will use to raise the bulk of the money.
Anyone chasing hot markets gets killed
Anyone in this business who’s chasing hot markets gets killed.
If you started seed investing when the consumer social market was hot, the market was done by the time your investments matured.
If you invested in the masses of food delivery companies that showed up once it became obvious Uber was winning—if you invested in companies five through 50—you lost your money.
If you invested in crypto in 2017, you hit the tail end of the market; the early side was 2009 to 2015.
Today, SaaS is hot. It’s a proven moneymaker. Let’s see how it plays out. When current seed-stage SaaS investments mature in five to 10 years, you may find the returns are a lot lower than they are today. It’s good to be at the beginning of a market—not at the tail end. By the time you see conferences about it and read TechCrunch articles about it, it’s probably too late.