On missing fat pitches

And how to deal with it

One of the hardest things about being an investor is the psychological impact of near misses. It’s not the losses that haunt me – and indeed I’ve been through days when I’ve seen close to a hundred million in unrealized fund NAV simply evaporate. I’ve experienced the panic of having your company’s entire balance sheet tied up in a bank run and possibly vaporized. I’ve lived through many, many crypto exchange bank runs and collapses, hacks, and so on (although somehow, incredibly I’ve never been personally affected.) Those aren’t the things that bother me. The thing that troubles me most are the incredible opportunities that have presented themselves to me, and that I haven’t taken, for some reason or other.

I’m not saying things like “I could have done the Ethereum ICO” (I could have, I was paying attention to Ethereum at the time, and I didn’t do it, because I was a hardcore Bitcoiner at the time) or “I could have bought Solana for a dollar”. You could use this logic to apply to any financial asset that went up a lot. I’m talking about situations where I had a specific opportunity, I had the means, structure, and wherewithal to take it, and for some reason or other I didn’t take the leap. These are the ones that make me insane.

In my career, I’ve lived through two monstrous market creation events that have spurred hundreds of 100-1000x opportunities. First bitcoin/crypto, and then the AI revolution. And I’ve been managing money professionally since 2017, and have had my own balance sheet for longer than that. All of this means that there have been a number of times where I’ve looked an opportunity dead in the face and backed away.

There are three specific occasions I can think of where my failure to act led to me forsaking, respectively, ~$250m, ~$20m, and $50-100m in specific return or carry attributable to me (not just generic fund-level return).

In each case I had a deal lined up and it didn’t go through for some structural reason – lack of desire to push it over the line with colleagues, lack of desire to scramble and find available funding, etc.

I shared my most recent miss – that was genuinely causing to lose sleep – in a group chat with some other investors and as it turns out, virtually everyone has an old festering wound like this. Anyone that has traded crypto for a while has sold something before it 500x’ed. This kind of relative deprivation kills careers. Some people psychologically cannot handle their friends hitting winners while they sulk over near misses, and they quit. What I realized is that everyone feels this emotion from time to time. Even my most successful peers. And they just bury it and move on.

The thing to avoid when you are hit with one of these misses is to avoid going “on tilt”, as poker players call it. Some people’s natural reaction to a loss or a missed opportunity is to size up, with the idea that they will “make it all back” if you win the next trade. This is a kind of martingale strategy if you think about it. A martingale is an old-timey gambling strategy in which if you lose a coinflip, you double the size of the next bet. If you lose, you double up again. In an abstract mathematical sense this totally works. However, it falls apart because bankrolls are finite. At a certain point, you can’t double down any more. So in the real world, the martingale is a terrible idea.

The way I deal with these near misses is to tell myself the following. I was in a position to make those bets in the first place for a good reason – my network, reputation, and sourcing, causing deals to appear on my plate for a specific reason. I was in a position to actually effectuate the bets because I had collected enough of a personal and fund-level bankroll.

Both conditions still obtain, so in theory I have nothing to worry about. I still have a balance sheet and have the mix of curiosity, access, and reputation which means that I should see similar high-quality opportunities in the future. Just stay in the game.

This self-soothing exercise keeps me from making rash decisions and trying to plow into hot names or run after a theme I know is overdone and expensive. In poker, when you are “card dead” and keep getting dealt bad hand after bad hand, the best strategy is simply to not force it and just be patient. The same is true in venture. One of the best decisions we ever made was to sit on our hands during the early stages of the crypto credit crisis in 2022 when everything was starting to go pear-shaped. Obviously, doing nothing feels weird and awkward. But we are paid to make good decisions, and sometimes the best thing to do is nothing.

As I’ve grown older, I’ve come to realize that managing these kinds of emotions is the core skill for any professional investor, whether you are a short-term trader or 10-year-horizon venture capitalist. Every day, we have to fight past a barrage of emotions in order to grow and preserve capital.

• You have to resist the urge to sell your winners too early (doubly a problem when your positions are liquid and marked to market on a daily basis)

• You have to resist the urge to deploy too fast, even if you are incentivized to do so

• You have to resist the urge to double down when you are on a losing streak or dealing with a near miss

• You have to resist the urge to ignore valuation when presented with hot, glamorous deal which is overpriced

• You have to resist the urge to stray outside of your mandate, even if all of your peers are doing it

• You have to resist the urge to cut your losses when you are stuck in a losing position that you believe will turn around

This is why people talk about conviction so much. It’s a total cliché, but conviction is what actually allows you to stay in the trade when you have a position that’s up 10x and everyone is begging you to sell. Conviction is what lets you ride out a loser that is going to eventually turn around. Faith in your own abilities is what lets you walk away from an amazing deal that simply illogically priced. And self-belief is what enables you to continue soldiering on when you stare a generational winner in the face and miss it. Just stay in the game.