Enigma and a Crystal Ball
3 takeaways from my conversation with Larry Warnock, Founding Partner of Ring Ventures
This is science meets art wrapped in mystery with an enigma and a crystal ball bouncing in the background.
Today, I’m breaking down 3 takeaways from my discussion with Larry Warnock, Founding Partner of Ring Ventures.
Check out our full conversation + how to connect with Larry here.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are today’s 3 takeaways:
The 3 T’s: TAM, Tech, Team. Most important? Team by far.
Don’t Ignore a Great Team Because their Idea is “Meh”. I see angels do this all the time. “I don’t get the idea, so I’m out.” Huge miss.
Please Don’t Do Weird Stuff to a Founder’s Cap Table. This makes it very very hard for an entrepreneur to successfully raise VC.
1. The 3 T’s: TAM, Tech, Team
I love simple frameworks. Especially when they’re developed and used by legends like Larry. Here’s his:
TAM (Total Addressable Market): Is the market big enough for what they're doing that if they were to gain 50% market share, would it be interesting? Investors should look at how big is the target they're going after, and that has to hit a threshold.
Technology: Does it work? Is it interesting? Does the target audience believe it's interesting? Is this an aspirin or a vitamin? An aspirin solves a pain, a vitamin helps you for the future. The tech has to be viable, it has to work, it has to be modern.
Team: Is this founder or founders capable of addressing this problem in this market? Do they know this market? Have they been in this market? Is it just a dream of theirs or is this something they bring as far as credibility and background? Also personality traits: do they have the ability to listen and to see the tea leaves and adjust? Because adjustment always happens. Much like a running back has to cut and jig and jag - the objective is always to get into the end zone, but sometimes it's “Oh, double back and run back around behind the quarterback and go up the right side.” Can the team do that? And if they can't, do they have the ability to recruit a team around them that can?
2. Don’t Ignore a Great Team Because their Idea is “Meh”
Totally sold on a founder but not 100% sold on the idea? Larry’s experience would suggest that the bet might just be worth taking.
If I look back over all my successes and failures, the team was the more critical factor in the success or, quite frankly, the failure.
The deals I've missed have been not being able to have the foresight of where it could go.
Great businesses become great businesses because of execution. It's very rarely the idea. And very rarely will this tech be the only one in the market… Because business execution is what takes a great idea to a great company, execution is a function of the team. Period.
3. Please Don’t Do Weird Stuff to a Founder’s Cap Table
An ugly cap table will cause a VC to pass on a deal they might otherwise do. Larry made this point abundantly clear. And he’s got the reps to back it up: with over 70 deals under his belt, how many do you think he said “no” to?
What VCs do not like is a jacked-up cap table. So Angels, be careful. Don't do funny, crazy things that are out of the ordinary to the cap table. Invest, get your preferred shares, but don't do these side letters where you get five points of common because you're going to “help” them. You're not an employee, so you can't be fired. And so the VC is like, wait a minute, this person has five points of common, but we can't fire them?!
The VC is going to go, “Well, I could force them out or make them sell shares, but now I've started the relationship with contention. Life's too short, we pass.”
Bonus Takeaway: 3 Hot Trends in VC
Hot Trend #1: AI Applied
AI platform investing is pretty much over. That was about five or six years ago. It's now the application of AI engines, platforms, and LLMs (large language models) to a very specific business problem in a vertical that's hot right now. So if you find AI applied to a specific line of business or a vertical with people on the team who have a deep understanding of that vertical, that is a good area and it's trending. If it's just a generic AI platform - good luck, you're competing with Microsoft, Google, and OpenAI. The platform play has been taken out. You should have done that six years ago.
Hot Trend #2: Hardware is Hot Again
You've got AI driving a chipset called a GPU (graphic processing unit), which is basically an ancillary chip to the CPU that helps with other processing, and it just so happens it's very, very good at inference and probability and things like AI.
There's this whole new set of chips that are being purpose-built for very specific things. Doing AI processing on a mobile. Doing AI processing in the cloud. Whatever it happens to be. Hardware is back.
Hot Trend #3: Advanced Manufacturing for Defense and Aerospace
These companies are raising venture capital money to build highly specialized manufacturing facilities for, defense purposes. Defense is popular because we've got two wars going on right now. People are like, “Oh, you mean war's not over?” We might have wars with us for the rest of humankind, but now it's top of mind. So it's getting money.
3 Lessons Learned
Building custom automated workflows is stupid easy now.🤖
In the span of 3 hours, I went from zero to a fully automated workflow involving 2 user forms, customized email notifications, multiple database updates, and a series of internal notifications. A few years ago something like this would’ve been functionally impossible for an average yahoo like me. But tools like Claude, PowerAutomate, Jotform, and more have dumbed down the UI so much that us normal folk can build crazy stuff like this in an afternoon. Wild.“Heavy” is relative.🏋️♂️
It’s easy to get frustrated with others for being incapable of handling the same load as us. Or that we can’t handle the same load they can. But heavy is relative - it’s unkind and unrealistic to expect someone who hasn't exercised in 3 years to lift as much as someone who never stopped training.
Sprinkles and rainbows don’t make you better.🎉
It’s fun to be affirmed, applauded, and celebrated. But that kind of feedback doesn’t really make you any better. This week I reflected on how grateful I am for the people in my life who are willing to point out my shortcomings and walk alongside me as I stumble along.
3 Interesting Links
Your company data is fascinating: 7 well-marketed examples (link)✨
Professional services revenue is cool again?! (link)💼
Business owner satire - it’s so good (link)😂
Tune in next week for a breakdown of my conversation with a VC veteran who’s served on over 35 boards, including Khan Academy, CBRE, Staples, and more.
Until then, thanks for reading - have a great week.
-Andrew
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How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.