Paul, David Gardner (DG) and I (DLK) have been working together as LVP for over 3 years now. We formed as a VC firm, adopted formal VC processes and operated with VC diligence. But with two slightly unusual nuances.
It's not narrow, it's focussed
First, we chose to be very tightly focussed.
Most VC funds have a relatively broad remit... it might be 'healthcare', or 'technology', or 'energy'. We choose to invest in only the video games sector, and almost entirely in the mobile, tablet, online sub sector, and only in startup and early stage companies. We don't do gambling (or anything that involves real-money out) and we don't do traditional AAA console businesses. We were convinced that by sticking to what we know, in the areas where technological disruption is bringing opportunities, and working with teams at a very early stage in their development, we would not only have a lot of fun - we get to work with the types of people we love to work with, on ideas and visions that we love to support, at a stage where we can personally and directly bring a lot of value - but we would also produce outsized returns.
Early is risky, but get it right and it's where phenomenal value is generated. But to get it right, we have to work with a laser-focus on exactly and only what we know... if we don't understand it, thoroughly, completely, we don't invest.
We don't believe this is narrow, we believe it is focus.
Practice what you preach
Second, the funds we were investing were entirely our own.
This was not as we had originally intended. We were in the long, drawn-out process of raising an 'external fund' - technically, we are what's called 'general partners' - we operate and manage the fund. But we also wanted 'limited partners' - these are the guys, often institutional, industry, sovereign, or family wealth funds, who bankroll VCs. Yes, VCs need funding too!
But guess what? Even with our backgrounds and previous business successes, no-one was uncontrollably leaping to back us. Most everyone we approached loved the message and our story & abilities, and they believed we could succeed... but not that we would succeed. In retrospect, it's clear we were asking them to believe not in our past, but our future - we were first-time fund managers, running our first fund, in what they perceived as a fantastically exciting, but uncertain, growth sector. We were full of potential, but with little to evidence that our potential would be realised.
We pushed on anyway, as a private fund investing our own money, without external funding.
There's nothing that sharpens the mind quite as much as having your own, individual, personal savings on the line. Each time we placed a bet - because that's what it is when we choose to invest - it was not just our reputation it was also our money, our future at stake. We didn't draw a salary (we'd have been paying ourselves), we didn't reclaim expenses (other than basic, direct, out-of-pocket expenses incurred as directors if we served on a board), we didn't get bonuses, freebies, per diems, healthcare, phone bills covered, travel allowances or any other recompense or personal benefits. Every penny we spent was our own. And the discipline this has instilled is priceless.
Now, with proven focus, evidence that we believe in ourselves, proof we can execute, some fairly fabulous success and a discipline borne of necessity, we're finding that the cadre of professionals and institutions who are our potential backers are keen and willing to engage. This set of proof points is precisely what we look for in our portfolio companies... gosh, this dogfood tastes great!
We are thrilled to be starting the next phase of our growth with investors who can bring to us the type of value-add that we endlessly strive to bring to our own portfolio companies.
We practiced what we preached and, as we believed, it has paid off.