Subscribe
Share
Share
Embed
Making capital allocation decisions in low information environments and with alot of uncertainty is hard. This show talks to people who do this every day and teases out how to be good at it.
Martin Tobias (00:00)
Hello. This is the first bet. And every successful person gets interviewed about how they won. Nobody drags them back to the moment before it all began to work, when the information was thin, when the money was real, and they pushed their chips in anyway. And that's what we do here at the first bet. I'm Martin Tobias. I'm managing partner of Incisive Ventures, and I've bet three ways as the CEO building a company, as a pre seed investor, and as a poker player.
Today's guest has spent 20 years closing 50 plus deals across three continents, including a $1.6 billion LBO. He walked away from all of that to make a very different bet that the entire venture capital industry was running on the wrong operating system. His thesis is pretty blunt, that intuition, the tool most investors treat as a superpower, is demonstrably unreliable in early stage VC because.
Intuition only works in environments where they have clear feedback loops. Early stage ventures, not exactly that environment. And he built a framework to replace it, has trained dozens of GPs and hundreds of founders on it, and is fact in fact now pursuing a doctorate to nail that academically. His name is Aram Atar. He's the founder of the VC factory, an architect of mindset-based investing. he's also an LP in Incisive Ventures Fund to My Fund, which means
that he's already applied his framework to me and maybe we'll get into that a little a little bit more and talk about how that worked or maybe how it almost didn't work. Aram welcome.
Aram Attar (01:31)
Thanks, Martin, and super, super happy to be here.
Martin Tobias (01:33)
Okay. super. Well, maybe you can you know, take me back and just start with a little bit of background. You'd done LBOs and growth equity and things like that. And how did you decide to make the transition into thinking about mindset investing and and how to make low information decisions?
Aram Attar (01:52)
So about after fifteen years being a an investor and advisor, I started teaching VC first to students and then very quickly I started teaching people aspiring VCs, people who wanted to be into V C and then VCs themselves. So I had an online program, it was called the V C Career Accelerator. I took it off now because I'm I'm the god of things. And then the question that was coming every time was how do I make better decisions? And so I started listening, I was twenty eighteen, right, when I started.
Martin Tobias (02:12)
And then the question that was coming every time was how do I make the better decisions? And I tried this one speed right now,
I tried.
So I tried it to go by the time where vocal on CD outbreaks that it wasn't like every single time, but yeah, that like today.
Aram Attar (02:19)
So I started listening to people who at the time were vocal on VC, Brad Felt, Fred Wilson. It wasn't like every VC had a podcast like today. So I started listening to those really, really good people who had repeatedly made billion dollar outcomes, people I called power law masters, 'cause they really, really tamed the power law. And
every and the the the mindset based investing framework imposed itself to me because all these people talk about is psychology.
Martin Tobias (02:38)
I really and the the mindset framework improves itself unique because all these people talk about this
technology. And that's what mindset based basing is, is it's the team to make equal returns at every capital allocation steps, so LPs to GPs and GP to cameras, recognizing that you know
Aram Attar (02:46)
And that's what mindset based investing is, is it's a tool to make improved returns at every capital allocation step, so LPs to GPs and GPs to founders, recognizing that you know the mistakes
Martin Tobias (02:59)
The mistakes we make or the techniques we make are largely in our nest. So we have those biases that the make us as a GP opportunity or then we need to make us stick away from one of the test segments, which is segment partially in the evidence.
Aram Attar (03:00)
we make or the successes we make are largely in our heads, so we have those biases that make us miss as a GP a great opportunity, or as LPs make us stay away from one of the best segments, which is your segment, Martin, emerging business.
Martin Tobias (03:15)
Okay, great. So maybe you can take me a little deeper into one thing you discovered, which I think is counterintuitive to some people that intuition
you know, doesn't work. May do you have any data around that? And and then summarize for us the pillars of of your mindset, the the the decision cre framework that you have that's different from intuition. So why does intuition why is why can you not trust inform in intuition in a in a low information environment? And you know, how what are the pillars of of your framework that make it different?
Aram Attar (03:49)
Okay. So the the framework is how do we pick the best GPs and my analysis which is very qualitative because you have only twenty to thirty people in VC who have made repeatedly b outlier outcomes, right? And it seems to me, it's still work in progress, it's been you ten years I've been working on it, but now I'm doing that full time, that they they are take making the decisions in three steps. And you and I talked about it when you were kind enough to come as a guest at my event at South by Southwest this year. But basically it seems like
Martin Tobias (03:59)
Yes. And it seems to me, it's been working progress with working in the lab with that whole time. That they have they were taking making the decision in three steps. And when I talked about it when you were done in last year, I mean that's a event and stuff like that, but this year. But he he did
like people just out of the last person or good
Aram Attar (04:18)
Those people, these power law masters, are good at
Martin Tobias (04:21)
as
Aram Attar (04:21)
having the intuition but then pausing it, delaying it. Then they're collecting data and they're usually collecting data in a scientific way. It means they're not they they really are trying to fight confirmation bias and all those things that make you fall in love with your own ideas. And then when they make a decision, which is a third step, they seem to have what we know, psychologists called a promotion focus. They they don't really care about the loss, they're trying to win.
Martin Tobias (04:22)
Have you been pushing with them closing it? And then when they make it this is the first step, if you have what you know at this point, a promotion focus, they don't really care about the cost they're trying to win. They're not trying to go to the price. So this is the reset and increase is the first step is increased that
Aram Attar (04:44)
They're not trying not to lose, right? So this is these are the three steps and intuition is the first step in this three step process of making hopefully outlier decisions time and again.
Martin Tobias (04:54)
Okay. So your thesis isn't that intuition is bad, that it might give you a good guidance as a place to start. But if you're in a low information environment, the next step beyond intuition is to try to narrow that information gap. And you know, in VC land we call it we do due diligence. You know, I know some VCs that are like,
so so's investing. I'm gonna YOLO in right behind. And they sort of skip the diligence thing completely because it's a hot deal or it's closing by Friday or something like that. And and you say don't skip the information gap because one of the ways to in improve decision making with low information is to try to bridge the information gap as much as you can. And then that third part that you're talking about is something that other people have have mentioned, which is to place bets which have an asymmetric return.
And I think
Aram Attar (05:44)
Yes.
Martin Tobias (05:45)
that's different from, you know, real estate investing or something else where you you have a fairly reliable, you can run a spreadsheet and you have a fairly reliable 15% return and you know there's tons of data behind it, but you're you're never gonna make a hundred times your money in real estate, but you can make a hundred times your money making these kinds of decisions. And so therefore having a bias towards asymmetric returns.
even in low information is how you can compensate for low information is that the in poker they call it the pot odds. If you're making enough of a return relative to the risk of success, you know, if you have a ten percent s r ri chance of w it working, but you're making a hundred times your money, those pot odds make even making ten percent bets worth your time. Does that
Aram Attar (06:38)
Yes.
So let me take the poker exactly. You nailed it and I listened very carefully to your first two episodes and I'm a huge fan of the podcast already. And so let me
Martin Tobias (06:45)
Thank you.
Aram Attar (06:46)
tell you what because I'm not a poker player myself. And so I was listening to your first episode and there are two differences with poker and VC that I think are gonna highlight what mindset based investing is trying to do. because in poker you have two things that help you deploy what we call what psychologists call expert
Martin Tobias (06:59)
That as you want you can just call it
Aram Attar (07:05)
intuition. Expert intuition is
Martin Tobias (07:05)
expert intuition expert intuition
means your firefighter that's a good example is that you're a firefighter you come into a house that's a fire something to journal and the caption you pull on your fire firefighters out and the house crumbles and that has happened time and again people have written papers papers on it and you you wonder what Kane's chest you you have some masters grandmasters and just
Aram Attar (07:07)
You're a firefighter, that's a classical example in psychology. You're a firefighter, you come into a house that's on fire, something feels wrong. As a captain, you pull all your fire fi firefighters out and the house crumbles. And that has happened time and again. People have written papers, peer reviewed papers on it, and you d you wonder why. Same in chess, you know, you have some masters, grandmasters. Magnus he's
that's what he said last time was I feel my intuition is better because I released my intuition to win. Okay, so that works.
Martin Tobias (07:31)
That was the last time was I think my intuition is better because I have a lot of nutrition to it. Okay, so
that works. Why? Because the thing that's based on the work of the category of course and other you have rules that work and then you have a feedback. You have rules, right? And you have a very, very short feedback which you know by the way, right? Yes.
Aram Attar (07:36)
Why? Because of two things, and that's based on the work of Daniel Kahneman of course and others, is you have what you said before, you have rules that work, and then you have a feedback loop. And in poker you have rules, right? Because if you you you can't do whatever you want. So if you apply the same things you're gonna have the same results. And you have a very, very short feedback loop, you know right away, right, if you ride along, and you guys play
so many hands in a night that you can build
Martin Tobias (08:01)
And the right that expand
yells the aspect. Now the only is that issue that I mean one of those three aspects is that if you make a lot of decisions, and I think that's what you use is quite required with it.
Aram Attar (08:04)
That expert intuition. Now the problem in VC is that VCs they have only one of those three aspects is that they make a lot of decisions. And so they think and they see a lot of deals and they think, Wow, I'm pattern matching. So they they think pattern matching is at some point is a God given gift, it's a mystical thing. That's why I started my report with intuition is not a mystical gift, right? Because intuition is only recognition, it's only
Martin Tobias (08:30)
So you have that. But in D what you don't have is a big no market because in a point or C you don't have role because you could invest in five to have the same policy, it's the same ICM labor, but we can see you do other things, probably log and diet and it could not have a rule, otherwise everyone would be the thing that can build. And you don't have a short feedback should be
Aram Attar (08:29)
recognition of what you've done before. So you have that. But in in VC what you don't have is, as you know Martin, because you've been a an entrepreneur before you were a VC, you don't have rules because you could invest in five founding team, have the same quality, same ID, same whatever, and maybe four fail and one succeeds. That's due to other things, probably luck and timing and many other things. So you don't have a rule. Otherwise everyone will be investing in the same deals. And two, you don't have a short feedback feedback look because
Martin Tobias (08:56)
because
Aram Attar (08:57)
you know, it takes
a year or two to have even a a a another round and then it takes maybe two or three years even to fail and so on. So it doesn't really work in VC. and so that's the conclusion I came to based on the work of top psychologists including Danny Kahneman.
Martin Tobias (08:58)
Yeah, yeah, yeah.
Yeah, i i that's definitely the the feedback loop is definitely missing in in venture unless you've been at it for twenty years. So let's go back to the your decision that you made to become an LP of my fund.
h how did those d you get through those three things with that capital allocation decision?
Aram Attar (09:30)
So on on investing as an LP, I started because I thought where is their urgency of applying mindset based investing in VC and I think LP is missing emerging VCs is is is horrible because that's where i if you look at the at the at the numbers we have, we don't have a lot of numbers on that, but you have a Cambridge Associates has its chart where you look for ten last ten years. Well, twenty maybe six to twenty sixteen, so last ten years that make sense because of you know the
Martin Tobias (09:50)
We have a country associated as the chart when you go for ten last year, or I think to twenty eighty with last paper that makes sense because
Aram Attar (09:59)
the life of the funds, the top ten funds every year. And out of the top ten, five, half of them are fund one and twos every year. So every year
Martin Tobias (09:59)
of that from the one. And the shots can not say every year. Every year.
Aram Attar (10:08)
for the last ten years, ex every exact and then and then maybe two are fund three and four, so still qualify as emerging managers. And then one or two are established players. And the problem is you have thousands of those, so only the top I don't know how many percent, maybe one percent, two percent of emerging VCs are outperforming everyone else. But then you have a long tail and you don't know how to pick. Because the problem is
Martin Tobias (10:18)
You have thousands of those, so only the top, I don't know how many percent, maybe one system who suspends of the cities are up and forming everyone else, but then have a long scale, it doesn't have to be because the problem
Aram Attar (10:28)
In VC, for the reason that you know science has not confirmed, LPs are using track record as a metric to pick funds. And if you look at it's a phenomenon called persistence. If you look at this couple of papers on persistence, it's not confirmed
Martin Tobias (10:29)
is in this c for the reason that you know science has not confirmed, using track record as such a metric. If you look at even the element called persistence, if you look at the couple of papers on persistence, it's not
Aram Attar (10:46)
that there is persistent venture capital. Like the the probability that if you have a top quartile fund, this fund, the next one would be also top quartile is like thirty percent. So it's less than you know
Martin Tobias (10:46)
confirmed that there is persistent better capital likely the probability that if you have the top quarter fund this fund, the next one would be also top quarter is like thirty percent. Yes.
Aram Attar (10:56)
flip of a coin.
So that's a problem and which I call the emerging VC conundrum is you as an LP are leaving a lot of money on the table because off the table, sorry, because you were on the table, because you are trying to you avoid this pocket of people like yourself who are super successful, super performing. And the the the I'm not crazy, right? I started putting my own money behind it. So I didn't start with my bright bright ideas.
Martin Tobias (10:58)
that's the problem and what I call the version we think is you as an MPO you can left money on the table because the of the table sorry because you put on the table because you are trying to avoid these pockets of people like yourself who are super susceptible super perform. And the the I'm not even starting
Aram Attar (11:19)
I took a team of three researchers, through three of my MBAs. We spent months going through how do top LPs today
Martin Tobias (11:18)
is I think about the structures for sort of an idea not to go into how you've got entities
today these emerging cities to look at how these from our partners I think she's a gem that yeah and she is and I can keep which and it was not ethnically at that key but he originally looking that I didn't have any forever
Aram Attar (11:26)
peak emerging VCs. And we look at how Bizer Clarkson from Sapphire Partners, I think she left now, but she was there when we did it. Michael Kim at Sandana. Exactly. She's a gem. And and she and Michael Kim and Samir Kaji, who's not technically an LP, but he's been he's the OG in the space. He's been talking about LP investing forever. And so we went through
hundreds of podcasts, articles, you may you name it, blog videos, we with
Martin Tobias (11:45)
What projects of the podcast articles about videos?
Aram Attar (11:50)
AI, but then we checked everything manually. And we found that they have
Martin Tobias (11:51)
We realized that we checked everything manually. And we found that they
have those six rules that they apply consistently. And in my working, the first report I wrote was that those six rules can be traced back to mindset. And so long story short, for example, you know, one of the rules is how have you worked on investment pieces, what's the size of the funding going forward and so on. And this is the difficulty mindset because you know, as you know, GPs like founders, they tend to go for a new stuff, like founders ask.
Aram Attar (11:55)
Those six rules that they apply consistently. And my work in the first report I wrote was that those six rules can be traced back to mindset. And so long story short, for example, you know, one of the rules is how have you worked on investment thesis? what's the size of the fund you're going for? And so on. This is really linked to mindset because you know, as you know, GPs like founders, they tend to go for huge funds. Like founders ask for too much money
and GPs ask for too much money.
Martin Tobias (12:20)
money can give me the last
money. If you actually was a student investing key is the last thing for five million maybe to to to 100 investors maybe there's something that might that that shows that that you're not gonna use an Eules that's what I do is I try to use my own framework to invest in MS GPs before they have a track record. Okay
Aram Attar (12:22)
Now, if you have a GP who has a solid investment thesis and asking for five million maybe to to to test themselves and show they're good investors, maybe there's something in that mindset that that shows that they they they they are grounded and maybe they are going to be a good investor. So so that's what I do is I try and use my own framework to invest in emerging GPs before they have a track record. And it's based on two things. One is how
do you build your firm?
Martin Tobias (12:50)
How do you build
your firm? So in your case, it's anything like a nice story to identify the cars or so on. That makes it take that a good money in people who are going to resource and never access one. Okay. So what are you trying to find as an entrepreneur of you building the program? You go talking to the person trying to try to get what you want by using, and I think people can use to learn how to
Aram Attar (12:51)
So in your case, same thing. Like wha are you are you investing or are you spending all your time travelling to nice resorts where LPs are and so on? And I've made mistakes. I I put money in people who are going to resorts and they never raise the fund. Okay. So what are you doing? Are you as an entrepreneur, are you building the firm, are you talking to your startups, trying your theses, trying to get the money you want, or are you doing something else? That's one. and I think you know LPs should learn how to evaluate
Martin Tobias (13:18)
evaluate as congress
Aram Attar (13:18)
GPs as founders first.
Martin Tobias (13:20)
first and then are they trying to win or are they just trying to are they really trying to figure it what is the decision making process and happy to give examples of your own process that's the speech making skills. Yeah
Aram Attar (13:20)
And then are they trying to win or are they just trying to not lose? So are they really trying to take risks? What is the decision making process? And I'm happy to give you examples of your own process that seduce me if you want.
Martin Tobias (13:34)
sure okay we can do that so when you
You it seems like you make a decision to deploy Capital and Emerging Manager very different than a lot of other L LPs might do. And if I heard you correctly, the primary mistake you see other LPs making is that they are overweighting this the the replicatability of a track record. They're they would rather invest in funds three and four of somebody that's done some average returns than to look for where the alpha is
which you see showing up in Cambridge reports, which is all of these fund one ones and twos. So you think the primary and and and I think part of it in in institutional LPs is is a confirmation bias of buying the brand name. Nobody ever gets fired for hiring buying IBM in in in VC, you might not get fired for investing in Andreessen Horowitz or Sequoia or something like that. But a lot of times you just can't get into those. So you think the primary mistake
Aram Attar (14:29)
Exactly.
Martin Tobias (14:29)
most LPs make
is overweighting this replicatability thing, which you've seen in the the research doesn't hold in in venture capital.
Aram Attar (14:39)
Exactly. And you you have two pockets. The the large institutional LPs, they're probably never gonna change because they also have to put a lot of money to work and they can't write, you know, twenty, two hundred, five million checks five million dollar checks. So for them it's it's maybe the way they do it is okay for them. But the people I'm talking to mostly are people like me, who are people putting hundred K, fifty, hundred K to one million dollars in funds. And as you said, they don't have access to
Martin Tobias (14:59)
Yeah, we have to have a button.
Aram Attar (15:04)
the sequellas and Andres of this world anyway, right?
Martin Tobias (15:06)
Anyway,
right? And never and and so you're just probably should everybody that's in the earlier measure people start right to work. That's that's the problem. And and the problem is they don't really know how to get that. And and you've given them a frame
Aram Attar (15:07)
And they l and and so they are shutting themselves from a huge opportunity to try to invest in in earlier managers, people in fund one and twos especially, you're right. That's that's a problem. And and the problem is they don't really know how to evaluate those. Because there's no track record.
Martin Tobias (15:22)
you've given them a framework and that's and that and that's really good. maybe you could go back to the
I mean th obviously in in my fund a lot of things passed as a yes, but what were some of the flags or what were some of the things that were a case against that a lot of LPs might come up against with with this kind of thing? One one might be, you know, I I've never heard of this guy in no fund, and so I'd rather, you know, invest in, you know, name name brand. But what are some of the other cases against you know, that that LPs hear
against investing in early managers, what are some of the things that you have heard?
Aram Attar (15:55)
So the fr frankly, I don't think it goes really much past they don't have a track record, so we don't know if they're good. That that's really
Martin Tobias (16:01)
Yeah.
Aram Attar (16:02)
by far the main reason.
Martin Tobias (16:04)
Yeah.
Aram Attar (16:06)
then you know, because they're looking for social proof and there is none. and so the exactly. And so the second thing the second thing they look for is is that person
Martin Tobias (16:09)
Social proofing. So the second thing you the second thing you look for is that
Aram Attar (16:16)
what we call a spin out? Like have they worked at a VC firm before? So that's the second thing they're looking for, which by the way, you know, Bizar Clarkson is doing as well and it's fine for her, it works for her.
Martin Tobias (16:18)
So that's the technique you're looking for, which by the way, you know, the clockwork is doing as well, it's fine for it works
for her. But the problem is you then have to understand where this could just do in the IC term.
Aram Attar (16:24)
But the problem is you then have to understand were they successful in that VC firm because
of the brand or because of themselves? And so how do you know that? It happened to me, I looked at a couple of funds like that. And in one of those, the founders had followed the GPs when they left the firms, which is great. So they they had taken the money in the following round from the same GPs. So that's a good sign, right? But apart from that, I'm not sure how you know the the fact that the the
Martin Tobias (16:31)
So that's a good time, right? But apart from that, and not from having the fact that the
Aram Attar (16:52)
GP knows
Martin Tobias (16:52)
If you
doesn't have to just already I'm not sure that's something that's unvisible compared to having investment pieces that
Aram Attar (16:53)
how to invest already. I'm not sure that's something that's unbeatable compared to do they have in investment thesis that they
really, really resonate for because you know for example the first investment I did before your fund is in a someone who's worked fifteen years in energy and climate and guess what? He's deploying a climate slash AI fund. So he knows backwards everything. The way I I I invest in him was I really looked at what he does with founders before he invests. And you and I had the same conversation. You told me I remember when we spoke.
Martin Tobias (17:01)
They really, really need to resonate for because you know, for example, the first investment I think before you fund is in a someone who's worked 15 years in energy and climate and stuff he's deploying the climate slash AI fund. So he knows blackboards everything. What I I I interested in was I really looked at what he does with fundraisers before he invests. And you and I have the same conversation. You probably remember
what he
spoke, and you know also what you think the next
Aram Attar (17:22)
that you know you're also already thinking of the next round before you invest in a founder,
you're already thinking about that. you also have an experience as a founder. And and maybe you'll be surprised, but you send me your data room, I didn't open it. I I never looked at anything your data room. I looked at your interviews on YouTube. You had a few good interviews on YouTube where you're explaining about your life, about how you make decisions, you and I talked, you came to my event, I asked you questions, that's how I made my due diligence is
Martin Tobias (17:31)
surprise but you see how you like roll I didn't know I never won't you actually use how you can ask you good disability was explaining about your life about are you doing decisions you and I talked we came to my event I asked you questions and that's I made like
Aram Attar (17:47)
For me, what I'm interested and I was right, because see you're a student of decision making, now you're you're here having this podcast. And and because for me, it's not for me, it's it comes from
Martin Tobias (17:47)
the people I was right because if you're a student of the student your team is right now I am
Aram Attar (17:56)
Aristotle, I I think to have the book here, is he said something two thousand five hundred years ago that's so r true is that the way you can judge of someone's character is by the way they make decisions. It's not even the actions, is how do they make decisions. And so that's in my due diligence, that's what I'm trying to understand. Do you make decisions as you said, because
Martin Tobias (17:56)
I thought that I think that we go here. So maybe in terms of something of character are easy to like the way they make decisions. It's not even connection. How do they make decisions? And that's in my uncle, that's the weapon as trying to stand. You make decisions that
you have to do like a four more social problems.
Aram Attar (18:15)
Someone else is doing the deal and you have FOMO or you have social proof or you do have your first principles, are you data driven? Are you questioning your own decisions? And and you Martin told
me and you repeated in one of your podcasts recently that we you have this algorithm that goes and looks at all the passes that you made and try to understand did I mess up, you know, difference between decision outcome and decision quality. So this for me is a great sign of someone who is taking the right decisions.
Martin Tobias (18:25)
Yeah, yeah. Well, that's good. That's so that is that is certainly one framework and and I've heard that from from other people. They i i i i if you don't have a lot of information about
what they're building and will anybody buy it, you really gotta j dig into the CEO or the GP's decision making framework and how they make decisions. And if you agree that they're with how they approach decisions. And I I've seen that as as as a common thing that that frankly a lot of investors don't do. They overweight you know
Other people that might be investing, the size of the market, and you know, the terms of the round even like, it's a good deal. but at the end of the day, if the person executing the business has a poor decision process, it it's not gonna be a a good a good outcome. Yeah.
Aram Attar (19:37)
Yeah, you you could rely on luck, right? You you said something, I think it was maybe your podcast was shown or or maybe the first one. Exactly. You guys discussed decision outcome and quality and it's so right because you could be lucky in VC that's a problem, is that many people are lucky. I was lucky, like I had a two billion dollar exit.
Martin Tobias (19:52)
Yeah, sure. Yeah.
Aram Attar (19:54)
I was lucky once and it was but really right time. Maybe I took a couple of good decisions, I was part of the team, mostly right time, and then the founder executed excellently. But I haven't done it twice.
Martin Tobias (20:00)
Yeah. Well,
Aram Attar (20:05)
Yeah.
Martin Tobias (20:05)
that that's
actually something I did when I put my thesis together and I think I explained this to you. The reason I'm doing B2B software pre seed, I and I talk about the six unicorns that I found in there. I actually have 12 unicorns in my portfolio, but six of them were lucky unicorns. I invested in a you know hydrogen company that became a unicorn. I invested in something else.
But the reality was I wasn't trying to replicate my luck. I was trying to consolidate my decisions around where I thought I had an advantage and where I thought I had some insight into a market that could be replicatable. Because for a GP, that's the the the key thing. And I and I I've seen it with other GPs. You said the guy was in energy for 15 years, now he's investing in energy. You say, okay, that's understandable. I have a friend that was a
B2B software VC for 15 years and then he decided to change and go into climate. The biggest objection he had from LPs is like, what the fuck do you know about climate? Your whole track record is in in a different category. and you know, I see that in in founders a lot. It's like, you know, I built a consumer app and now I'm building B2B. That for me is a bit of a flag because I don't think there's a lot of replicatable you know, decision-making process between those two.
So
i you know, I I think it's fair to dig a little deeper into how the person makes this decisions and do they have ex experience in in the past that's gonna gonna be replicatable in in the field that they're doing.
Aram Attar (21:33)
Yeah.
Yeah, because it what happens to me, and you know, it both what you said happens to me now as an LP and before that when I was a an investor, VCA investing founders, is today I would really pause that intuition that because that's again pattern pattern matching. I'm thinking, okay, if you have fifteen years in climate, maybe you understand better, but maybe not, right? Maybe
Martin Tobias (21:52)
Yeah.
Aram Attar (21:52)
you're going for the same solutions and you don't do anything
Martin Tobias (21:55)
Yeah, you can.
Aram Attar (21:55)
disruptive. So I would still pause that intuition and then that that's a collect information bit is
Trying to disprove that intuition and ask them, okay, so why are you here? Like to your the pi person you were mentioning who came out of B2B SaaS and doing something else. Why are you doing this? Is
Martin Tobias (22:01)
This group I think which I and asked the wire activity or the person we're mentioning who came out of this task and with something else.
Aram Attar (22:09)
this something you understood? Nobody else understood, do you have another advantage here? Why are you doing it? If the answer is not convincing, just I prefer consumer better, okay, that's definitely not gonna fly. But if you know they come at it with another angle or something that we didn't think about, and actually every LP is is not considering them for.
Martin Tobias (22:10)
Why is the rank at least? The answer is not for missing just I prefer consumer better. Okay, that's definitely not the applies. But if you have a company with another angle or something that you think about and actually every embedding is not considering them
for we can actually I guess so that's that's exactly the only stop the pathemating for a second, ask questions, be open, try and see how you are.
Aram Attar (22:28)
Better for me. That's where I get a not fair advantage that nobody else has. So that's that's exactly the posing the intuition, stop the pattern matching for a second, ask questions, be open, try and disprove your your early
intuition, and then maybe your intuition was right and then you can keep it, or maybe it was wrong and you should revise it.
Martin Tobias (22:46)
So let's go back to the you know when when you decide to commit to the fund. could you where did the confidence come from? I mean you had your own pattern matching in the past and you did some diligence on me and the fund. you know
What what were the yeah and and you said that you didn't look at the data room and you didn't look at you know a lot of you you you look more at the the decision so did did this did the confidence come mostly from getting comfortable with how how I make decisions and the category that I was in or where where did the confidence come from to actually say yes?
Aram Attar (23:20)
Yeah, the first of all I I don't need super hard conviction to make a decision because you know, I think you're when you're trying to go for a lot of conviction, everyone's talking about conviction now, but the problem is most of the time, many of the time, much of the time it's you're trying to convince yourself anyway. So it's not real conviction,
Martin Tobias (23:36)
Yeah, yeah.
Aram Attar (23:38)
it's just you know. And so no, for me it was really in in this market, people who win
Martin Tobias (23:42)
This market people who
win have a different way of giving eating and killing the world. A different way. I appreciate that.
Aram Attar (23:45)
Have a different way of thinking and seeing the world. And that's my analysis. Yeah, exactly. My analysis of the Parallel Masters is that it has the everyone is trying to find a common trait in great investors. And and so that's why I I publicly wrote an article what I call you a future Parallel Masters. So it's public, right? It's out there. Yeah,
but I believe it. Otherwise I wouldn't commit my my reputation to it. And so my analysis was ever everyone's trying
Martin Tobias (24:06)
It was never.
Aram Attar (24:07)
to find
What's a great VC made of and they talk about PDG and they talk about access and network and so my AC was five points that they have. One being that they tend to th see what can go right. They're not focusing on what can go wrong, right? They have they are willing to swing big, okay? So what you said, right? You can just lose one X but you can miss hundred X, so why don't you go all in? they are okay of being wrong and something again that you you're you're okay with they have a low
Martin Tobias (24:18)
They're not focused on the tech problem, but they have you're willing to swing. Okay. Well, I think we'll do that, but because that's what one X, but it's a third US one you can go all in. They are okay with being wrong. Yeah, but a lot of the version of the Lot
Aram Attar (24:37)
lost aversion, right? You are not afraid to being contrarian, right? And you know, I know from your history where it comes from. You know, you talked about it publicly, how you know
Martin Tobias (24:37)
of Playing, right?
Aram Attar (24:47)
your own history when you were sixteen and at home and and how to make your living. So I I looked at that. I read that, I looked at that and and I think it it informs a lot of who you are today. And then of course the first thing is to have a high tolerance for risk, uncertainty and ambiguity which are the same thing. So for me you had these five checks of the five personality truths I look for in this ease.
Martin Tobias (24:47)
You could be one equal to rate one university and then go up and make it with that right. So maybe you add the type test of the planet for
Aram Attar (25:06)
And then
Martin Tobias (25:06)
Executive.
And then is I need my framework and I'm willing to put money behind it. I I don't need to be a super supervised that I went, but I tell you what, since then you I received your newsletter, user letter, I love them, I they they show a lot of insight that I could see that we are good on TV and so on and actually don't write about that on the I think you're about to do it in the I do. Do you think that you have you like newsletter
Aram Attar (25:07)
Conviction is I believe in my framework and I'm willing to put money behind it and that's it. I I don't need to be super super convinced that I'm right. But I'll tell you what, since then you I received your newsletter, your LP newsletter. I love them. I they they show a lot of an insight that I've really seen elsewhere, everyone's on LinkedIn and Twitter and so on. And actually you don't write about that on Twitter. I think you write on other things on Twitter. But the insights you have on your LP newsletter
Martin Tobias (25:34)
by God?
Aram Attar (25:34)
My God, like I
you i the the how do you call it Saspocalypse or SAS every time there's a different term, right?
Martin Tobias (25:38)
Sasspocalypse, yeah.
Aram Attar (25:40)
Yeah, yeah. So so the way you explain, okay, everyone's telling you SAS is gone, but you know, I that's what I believe and so I mean I don't know if you're right or wrong, but I really appreciate the insight you put in, the thought you put in and it seems that you have a very unique point of view.
Martin Tobias (25:54)
thank you. And and I'm I'm looking for that in in in founders too. You know, I I was talking to a founder yesterday about raising a round and and I was like, you need to guide people of how you think you're gonna get from where you are today, which is two million dollars revenue to ten million dollars revenue, and you need to lay out the path. And he's like, Well, I don't know how it's gonna work. It might be different, it might be wrong. What if I'm wrong? And I'm like, it doesn't matter because people wanna see how you're thinking about it and they wanna see your process.
And and they all they most investors know that how it's gonna turn out probably different. Every, you know, plan, you know, doesn't survive the first punch in the face. But what they want to do is understand the framework and how you're thinking about it. And they wanna see that it's reasonable, that it's rational, that it is a little bit counterintuitive, that it has certain assumptions in here and there, but they wanna see your thinking about it. In and in and and many people get b you know caught up in this thing of well, I want to be right. Well
You're not gonna be right about something three years from now, but the framework of how you think about it and what you're gonna do when the the the the things change is is what people really wanna understand. And you spent time to understand that with me and I appreciate it. And I I try to do that with founders too, is to understand how they're gonna make decisions. I had a call with a a a founder today and he's like, you know, I lost three hundred thousand dollars of opportunities in my pipeline today, and I go, okay, well, let's go through them. What happened? Well, it things happened outside of me.
you know, the the the the the people got more scared about off site data pr storage versus on site and and we went through all the objections and I'm like, Okay, well what are you gonna do to respond to what happened this quarter? How are you gonna change your product or whatever? And he had a very rational and reasonable response to what happened and I'll and we just walked through it and but and but but I I really appreciated the way that he thought about objections and and and obstacles that come. You you mentioned
You know, Aristotle, I talk a lot about Marcus Aurelius and he talks about the obstacle is the way. And something I spend a lot of time on, it sounds like you do too, is w how's this person gonna react to obstacles? Right.
Aram Attar (27:59)
Definitely. And you you had actually a a great conversation. I this one was with Sean on on you know, you looked at you you said I think that YC had looked at the founders that had succeeded and what was their common points, right? I think you you mentioned that in one of the your second podcast and and what if I remember correctly, you said YC came up with it wasn't again about which school they went to, what they did, but the successful founders at YC seemed that they they hadn't quit. I think that's what you said, right?
Martin Tobias (28:18)
Yeah.
They they they they said the only thing that correlated to whether a founder was successful is whether they would quit or not.
Aram Attar (28:32)
Okay. So I would I would I'm not sure it's adding to it, but changing a little bit. I think for me that's that that's great. Grit is perseverance and passion, so you don't quit, right? And I think what's even better, and going back to your point before of the founders who are, you know, running above the obstacles, is resilience. Resilience allows you to pivot. Grit sometimes it can lead you to do the same thing always, right? So you're gonna hit a wall. And and if you look at
Martin Tobias (28:52)
Yep. Yeah. It can be blinders on.
Aram Attar (28:57)
exactly that's the Angela Duckworth
concept. And then resilience even better. And then to go to your point to Marcus Aurelis, yeah, of course if if you want to go over obstacles, it is so much uncertainty, so all you can count on is someone who makes sound decisions and maybe they're unlucky, it doesn't work. That's fine. I would still reinvest in someone like that because you know you you you you can be unlucky. But the second thing is that is is resilience are they able to take failure and make something out of it.
Martin Tobias (29:22)
Absolutely. so someone that it it's actually funny. My my my wife is I don't know if your wife is this way, but she doesn't understand this whole risk thing. She's like, now wait a minute, you write 10 checks and nine of them are not gonna work. How does it how do you not how do you sleep at night? Like I I I I need things to be 90%.
you know, six successful. I I want to be very secure and everything. Just like I could never do your job. And I'm like, okay, there are some people that are just not risk averse enough to do the job of a VC or to do the job of even being an LP in funds is because you have to have a to a a a a tolerance for risk. And one of the ways to measure that to manage that also is
you you know have a decision framework like you said on on how to make the decisions but also to you know bet sizing you know I tell people never to put all their eggs I met a guy one time who was 90% of his balance sheet was in venture capital and I'm like what the fuck are you doing? It's all in cr crazy shit. You know personally for me I have 80% of my balance sheet in low leverage real estate and only 20% in in venture.
It's just because I'm managing the the the the resources to where in the high risk low information things that I do, if I lost money there, it wouldn't affect the rest of my life. That's another tactic
Aram Attar (30:43)
Yes. Yes, yes.
Martin Tobias (30:46)
to compensate for for this lack of information is to manage your bet sizing there.
Aram Attar (30:52)
Yeah, I I totally agree and and and fun stories I used to work for family office and after I left the firm I I went to meet one of the members of a family with a friend and he told us the same thing. He said eighty percent of my wealth is in pride equity at the time was everything. And I came out of a meeting and I said I told my friend
Martin Tobias (31:07)
I a meeting guys.
Aram Attar (31:08)
who was his son in law something, how how why don't you tell him that he should diversify? I Yeah, but the thing is he has like a billion dollars. So he could live comfortably with two hundred million
Martin Tobias (31:16)
Okay. It does.
Aram Attar (31:18)
And then the rest is okay to lose it, you it's fine. So it also depends on how much you have, right? So me, I don't have that much. So so yeah, I I write small checks.
Martin Tobias (31:26)
Yeah.
Aram Attar (31:26)
but but as you said, I'm comfortable losing that money also. It's fine, I don't need that for a living. And and turns out now I'm starting talking to more and more LPs about that. And the first thing I tell them is if you want to go to VC, go with your eyes wide open. Know that don't ask for I I hate LPs asking for short liquidity. I mean, I have always every time a GP pitches me on liquidity, I'm like relax, dude.
I know it takes time to build a company, so I know it takes time to build a great fund, don't worry. So first LP should know about that. It takes time, right? For great funds to come through. And two, yeah, just put the money you're okay to lose because this is super risky. I mean it's it's still rare to make a lot of money. it's i you have to be the top desire of funds today to make it worth the liquidity premium.
Martin Tobias (31:49)
So first as you should know about that. It takes time, but what the rest process to but the book just put the money to because it's permitted to be working with
Okay. All right. Well thank you for all that. Maybe if you could just summarize near closer to the end here, you know, a takeaway. What are the y I don't know if you want to resummarize your
mindset thing the the the the three ways you you make low information decisions. But what are the two or three framework takeaways that people are who are considering being an LP in in in a GP w what are the two or three frameworks they should use to make that decision?
Aram Attar (32:33)
So the first thing is try and evaluate GPs as entrepreneurs because emerging GPs are entrepreneurs first, investors second.
Martin Tobias (32:39)
As entrepreneurs.
Aram Attar (32:41)
So look at how they build the company. Are they talking to startup founders? Are they testing the thesis, or are they just making all the time talking to lawyers to and paying hundreds of thousands of dollars to bring the fund up and talking only to LPs and traveling to LPs? So are what are they doing? How did they are they building the firm? That's one.
Martin Tobias (32:44)
Are just competing to start? Are they testing these for the industry on the time to work to and take hundreds of thousands of dollars to create the product and have to be found to use that? So are you then too fun as
Aram Attar (33:00)
And then two really try and understand and that's hard to do, right? I join investment committees of the funds I invest in usually. And but try understand how they make decisions. Ask them about why have you picked that founder, why this one, what's your view on the market, and try understand are they are they trying to make first principl do they have first principle approach? do they care about what other people think? I mean, that's for me what's really key is that you have someone who's trying to win and they're not just trying to not lose. They're really trying to to to
Martin Tobias (33:04)
Of the fund that you test usually and they try to understand how they make it usually ask them about why have you fixed that founder, why is it one, what should be on the market, and try to understand are they are they trying to make price decisions, do they have a price principle approach? Do they care about what other people think? That's for me because blue key is that you're trying to win and they're not just trying to try to try to win. Yeah,
Aram Attar (33:28)
they're promotion focused, they're not prevention focused, they're not trying to preserve
Martin Tobias (33:29)
promotion focused, they're not prevention trying to.
Aram Attar (33:31)
something. They're they're okay to bet their house based on
Martin Tobias (33:32)
Or something that we have is to get the house
Aram Attar (33:34)
you know their decisions.
Martin Tobias (33:36)
Okay. Great. Well, thank you very much, Aram. where can people find out more about you or this mindset investing if they want to? Your website or LinkedIn. What's the best way for people to learn more about you?
Aram Attar (33:46)
Best way is the the Vc Factory dot com. I have all my articles, workshops, reports, everything. I'm also on LinkedIn, around at our but best place is the Vcfactory dot com.
Martin Tobias (33:58)
All right. Well thank you very much for your time, Aram, and I hope to come see you again in Austin soon.
Aram Attar (34:03)
Thanks, Martin.
Martin Tobias (34:04)
All right.