Investor Stories 471: Missing Great AI Bets, Losing Conviction, and Overweighting Founders — Lessons from Redpoint, a16z, and Outside VC (Effron, Austin, Simpson)

**Nick Moran** (0:00)
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**SPEAKER_2** (0:25)
Welcome to the podcast about Venture Capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet.

**Nick Moran** (0:41)
Welcome back to TFR. On today's special segment, we ask guests to tell the most important lesson that they've learned in their career. Here's the segment called Lessons Learned.
On today's special segment, we have Jacob Effron of Redpoint. What's the biggest mistake or hardest lesson you've learned as an investor and what's the story behind that lesson?

**Jacob Effron** (1:07)
Always learning, that's for sure. I think one thing that comes to mind is, I think early in some of these AI categories, we had categories that we knew were going to be big. It just felt intuitively like there's no way, there's not a ton of enterprise value created in these categories. It's just such a clear trend that's going to continue. But it was not obvious how companies would differentiate or be able to compete against each other.
I think we wanted more, or I certainly wanted a little bit more certainty in how things would unfold and who would end up being the winner and the differentiated one.
And to some extent, that was almost an over-intellectualization. And I've kind of trying to balance that. I think always super important to be deeply rigorous and intellectual. But in retrospect, if you have such conviction that a category is going to happen, and you have conviction in a team, I think especially for our model, it's important to make those bets early. Even if you can't tell the cleanest story today on that level of differentiation, basically betting on teams to compound over time. I think now in retrospect, what I can say is, I figured maybe at the time, well, there'll be these AI businesses that are super differentiated and so I'll wait for those. Now with the benefit of hindsight, I'm like, oh, it turns out you differentiate over time through velocity. Nobody has those off the bat. I wish I could tell myself that two years ago because I would have made a lot more good investments.

**Nick Moran** (2:44)
On today's special segment, we have Ethan Austin of Outside VC. Ethan, what is one of the biggest mistakes or hardest lessons you've learned as an investor, and what's the story behind it?

**Ethan Austin** (2:54)
I think losing companies. I talked about this a little bit earlier, but losing companies that you knew or you had a feeling were going to be really great.
And I worked on a company for two years to get them, when I was running a Techstars Western Union program. And we had a partner who was a single, a sole LP who had veto power, and they only vetoed, I think, one or two companies ever in our program. And this was one of the companies they vetoed. And it got to Series C within a couple of years of investing or non-investing. And I think the last time I kind of take away from all of that is just like, you can find great companies and you can do all that work. Like spent two years trying to get them. They said yes, and then I got vetoed. And one is I became a solo GP.
So there's no chance of something like that happening again. But then it's just like you can't lose the companies you're really going after. You can't do all that work and then lose companies. And so I've worked really, really hard to try and make sure I don't do that.

**Nick Moran** (4:11)
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And this episode of TFR is brought to you by Dot Tech Domains. I review thousands of startup decks every year, and I'm always paying attention to the way founders think.
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