The Zero Cost Strategy

How the Zero Cost strategy can help investors overcome behavioral biases to become better long-term holders of compounders.

During some random summer YouTube browsing recently, I came across this rather interesting Groww podcast episode with a public markets investor called Basant Baheti. Candidly, I have no idea who this guy is, but the concepts he shared on this episode made a lot of sense and checked out with my own experience too.

In particular, he shared an interesting practice for everyday investors called the Zero-Cost strategy.

Given the daily liquidity in public markets, a challenge that investors face is the inability to patiently hold long-term compounders. Not only individual investors, but even the best professional investors often end up selling stocks at exactly the wrong time. A recent case in point is the famous value investor Mohnish Pabrai, who bought Micron in 2017 and ended up selling it in Sep’23 at ~2x cost. Unfortunately, Micron’s stock rose 15x post that, costing him ~$2B in missed gains.

To guard against these errors, Basant recommends that the moment a stock doubles after your investment, you should immediately sell a portion and take your original principal out. In a sense, your holding then becomes “zero cost”, which, given the way the human mind works, makes it significantly easier for investors to then hold for the long term. In the case of long-term compounders, Basant suggests “not to even look at the stock again for the next 10 years”.

This isn’t rocket science by any means, but I found it to be an elegant & useful idea that specifically acknowledges and leverages classic human biases of booking profits too early, herd mentality, loss aversion, fear, and greed.

While this particular episode seems to be aimed at regular individual investors, many institutional public market investors, too, could learn a lot from these concepts shared by Basant. In fact, he cited an interesting insight where hundreds of public market investors had identified and invested in Titan Industries over the last few decades. Yet, it was only Rakesh Jhunjhunwala who held on to it for more than 2 decades, letting it grow to 25-30% of his entire net worth at the time of his passing in Aug’22.

In a sense, this Zero Cost strategy applies to venture investing as well. In an OG post on AVC, Fred Wilson cited how he approached the “sell” decision in an extremely large fund position in Twitter:

We had bought 15% of Twitter for $3.75mm in the first VC round in 2007 and though we had been diluted down a bit in subsequent rounds, we had a very large position that was worth in the neighborhood of $1bn by 2011. Our entire fund was $125mm and so we were sitting on a position that was worth 8x the entire fund. It was a wonderful situation in many ways but I was nervous that macro events or a setback at Twitter could go against us and the position would go down in value, possibly significantly.

The way we managed this issue is we sold a portion of our position in two secondary transactions and in connection with those sales, I stepped off the board, making room for an independent director who would be helpful as the Company scaled and got ready to go public. We sold about 30% of our position in those two secondary transactions for about $250mm and returned 2x the entire fund to our investors.

That allowed us to “chill out” and hold the balance until the IPO, which had a customary 180 day post IPO lockup. After the lockup came off, we distributed the balance of the position, returning another ~$700mm to our investors.

– Taking Money “Off The Table” by Fred Wilson

In this post, Fred mentioned following a similar strategy for other winners like Zynga, Lending Club, MongoDB, etc., wherein in each case, USV sold 10-30% of its position in pre-IPO liquidity transactions, giving it the mind space to both hold and ride the balance while still de-risking the overall investment.

In another post, Fred recommends that the moment your winners go public and the stock gets distributed to LPs, he follows this selling strategy:

“I like to sell one third of the position immediately, put one third away for a long term hold, and actively manage the other third.”

–Selling by Fred Wilson

If you think about it, Fred’s selling philosophies are similar to Basant’s Zero-Cost strategy, which leads me to believe that there is some fundamental investing truth in this idea.

Btw, I have used some version of this idea in my life too. I bought Bitcoin in 2017 at a fairly low cost basis. Once it started running up during 2020-21, I took out a multiple of my principal, which has created a relaxed mind space for me to now hold my Crypto forever.

Similarly, in a commercial real estate property I bought in 2014, the cumulative rental income from it has now paid back the entire original purchase price. I have seen this now alleviate any behavioral selling pressure on me, freeing me up to continue holding and enjoying its passive income benefits without churning on macros, local market sentiment, or rental yield volatility.

PS: If you are interested in more mental models around “selling”, check out my old posts: When to Sell? and When To Sell? – Part 2.

Stay in Business

Stamina is one of the most underrated advantages in entrepreneurship. In a world where people start quickly and quit quickly, simply staying in business can dramatically tilt the odds in your favor.

Looking at all cases of long-term business success that I have observed in my life, a common underlying philosophy seems to be: [in Hindi] “Dhande mein tike raho” (focus on staying in business).

Phases of a business lifecycle

As any person who has ever started a business knows, the first order of business for an entrepreneur is finding product-market-fit – making something people want and are willing to pay for.

Once product-market fit has been established, the next order of business is to make it profitable, Phase 1 of which is unit economics profitability on an immediate basis:

(1) Positive gross margin, by selling something for more than the cost of goods sold ➡

(2) Positive contribution margin, so all variable costs incurred per unit are recovered, and eventually ➡

(3) Positive net margin, so both variable costs and an allocated share of fixed costs/ overheads are covered.

Phase 2 of profitability is making the business P&L profitable, so generating operating profit that covers all fixed costs of the business, and eventually, net profit (or PAT).

Phase 3 of profitability is generating free cash flow – the ultimate goal of any business, and the ultimate dream of any entrepreneur.

The core currency of business

Starting from the pre-PMF phase till the free cash flow phase, the drivers of success in each phase are very simple:

  • Retain & grow existing customers.
  • Find new customers.
  • Keep accessing capital to continue the journey (retained earnings, equity, debt).

If you think about it, the intangible currency that drives all the above is “trust”. As existing customers spend more time using your product/service, assuming they are happy with it, their propensity to stay & grow with you keeps increasing with each year.

Multiple human biases like commitment bias, consistency bias and behavioural inertia end up reinforcing this customer stickiness, as long as you keep delivering what you promise.

Similarly, the more time you spend in the marketplace, the likelihood of new potential customers hearing about you, particularly from your existing customers, keeps going up.

Finally, we always hear that capital chases returns. In reality, capital chases “risk-adjusted returns”. The more time you spend in the marketplace, the higher your trust is within the ecosystem, which reduces the risk perception around your business among capital providers.

That’s why banks prefer lending to businesses with established histories. The same reason is why VCs and PEs tend to track founders & companies for months before investing in them. It’s also the reason why institutional LPs can sometimes take years to build comfort around a GP, but once they back a team, they keep doubling down on them across multiple fund vintages.

So, “trust” is the key currency that businesses need in order to continue making progress across various phases of their lifecycle.

Competition

In addition to Customers and Capital, businesses also need to worry about Competition. Ultimately, customers are evaluating multiple options in the marketplace, and the business that ends up winning their vote is the one that is uniquely differentiated against competition.

This is where “staying in business” provides rich dividends, especially in the present age of fast-food entrepreneurship and role-playing founders.

The cost of starting any business & getting some early traction has gone down significantly, courtesy of technology. Therefore, any serious entrepreneur should expect the top-of-funnel competition in the pre-PMF phase to keep increasing each year.

However, the faster people are starting companies, the faster they are tapping out of the game as well. So, as your business continues chugging along and moving across the lifecycle phases outlined earlier, you will see a steep drop-off in competition at each phase.

Therefore, just by merely surviving, your odds of the marketplace self-selecting you as one of the few viable options keep going up.

Compounding

The key idea is positioning oneself to harness the power of compounding by staying in business. If you look at the most successful family businesses globally as well as major startup success stories across geographies, the reality is that it takes a decade to get it right and create a foundation, and then another decade to dominate the market and reap the rewards.

Most people don’t have the enthusiasm, energy and a mission-driven mindset to endure such long journeys. For founders, stamina is one of the proverbial low-hanging fruit that can help you massively tilt the playing field in your favour over the long term.

Investing in the “Real India”

While many Indian VCs are chasing Bay Area deals, I’m finding some of the most compelling opportunities in India-based founders building unsexy hardtech products with global ambitions.

This tweet from Anand Lunia (IndiaQuotient) really got me thinking last week.

Here was my response to him:

I think Anand is bang on here. Based on my interactions with several large US-India cross-border VCs, they are all looking to invest in the Valley and are mostly on the lookout to back Indian-origin founders.

This, of course, is a great way to ride the current AI momentum in the Bay Area. At Operators Studio, this founder persona is also one of my core focus areas in AI/ enterprise software, having backed the likes of Loop (AI for Restaurants), Confido Health (Healthcare AI), Noon (AI for Designers), Soulside (Behavioral Health), Muro AI (Construction AI), and Guard0 (Cybersecurity).

However, these are also some of the most coveted and competitive deals. The Valley-immersed Indian founder isn’t an unknown or undiscovered phenomenon today, unlike, say, when the likes of Nexus Venture Partners started focusing on it in the 2010s.

For smaller, operator-led funds like Operators Studio that write $100-300K collaborative checks, I still have a shot at winning over the founder with a sharply-defined value-add. But for larger funds that are looking to lead rounds/ put sizable capital to work in these Valley deals despite being largely offshore brands, their right-to-win against Valley competitors is unclear.

But then, how do they play AI? I understand their predicament.

One of my core beliefs about venture is that the greatest alpha lies in backing undiscovered founders, the non-consensus teams and companies that eventually turn out to be “right”. I have written about this idea before in multiple posts, including An Investing Framework to Find Startup Diamonds, A Talent Scout Mindset For VC, and One Person’s Conviction For Easier Fundraising.

Ergo, my investing strategy has two pillars – in addition to backing Indian diaspora founders in the US, I also back founders based in India but building for global markets.

Double-clicking on the latter bucket, in terms of markets, I am most excited about hardtech products that are not only core building blocks for the Indian economy, but also have the potential to be exported eventually.

These startups are being built in the “Real India”, as Anand puts it. These founders aren’t necessarily hanging out at Third Wave and Beanlore in Bangalore in their hoodies. They are building messy businesses, require workshops & facilities to be created in far-flung areas, and require hiring & financing strategies that look quite different from the classic Bay Area or Bangalore playbooks.

To illustrate this, let me give you a sample of companies I have recently invested in or am deeply evaluating as we speak:

  • Naxatra Labs – motor-tech that can beat Chinese and European products. Manufacturing in Ahmedabad.
  • Astrophel Aerospace – space propulsion engine components like valves & pumps. Developed and manufactured on the outskirts of Pune.
  • Planet Material Labs – new-age composites for logistics boxes and containers. Developed and manufactured on the outskirts of Gurgaon.
  • Climate & materials startup that has developed a low-carbon, cement-alternative material for concrete mixing. The concrete unit is on the outskirts of Bangalore, and so dusty that one needs a layer of masks just to breathe.
  • Battery-tech startup in Ahmednagar (3 hrs from Pune) for new-age use cases like Robotics, Defense, and Power Tools.

It’s ironic that while Indian VCs are shuttling to the Bay Area, trying to invest in deals here, as an SF-based fund, Operators Studio is actively investing in India-based founders building real, no-nonsense, unsexy hardtech products with massive cross-sectoral local and global TAMs and market demand that needs no validation.

One final point – while I actively co-invest with several major domestic and global funds in India, specifically in this second pillar of “India-based hardtech founders”, my worldview has resonated the most with Rainmatter, the prop money fund of Zerodha founders.

From what I have observed, the Rainmatter team is smartly identifying problem statements that are core gaps in the Indian economy and society, and backing founders that have an authentic commitment, passion & and domain-fit with these problems. An unsolicited kudos to the team!

Large funds have a tendency to go top-down in venture capital, spending a lot of time understanding markets and building thesis & maps. While this probably helps in Series B & beyond, my view is that at Seed and Series A, going bottoms-up is more beneficial. And founders are the best suited to observe and identify these opportunities.

At least this is the approach I am taking at Operators Studio while looking to back India-based hardtech companies with global ambitions.

Reserves for Emerging Managers

Adding some color to the debate around whether keeping reserves makes sense for emerging managers running smaller funds.

John Felix of Pattern Ventures has written an excellent X thread dissecting the important topic of reserves in early-stage VC:


Here’s my 2 cents on it:

For emerging managers running smaller, early-stage funds, the biggest challenge with effectively deploying reserves is a lack of access to adequate & updated information on how the business is *really* doing.

Series A & beyond firms have well-defined information rights and get data from the company on a regular cadence via board meetings, monthly update calls, or investor update emails.

As micro-funds writing $100-500K checks into pre-seed & seed rounds (often on SAFEs), we are at the mercy of the founder in terms of what they choose to share with us.

Even if one works hard to build a relationship with the founder via adding value, the real underlying health of the business still gets communicated either extremely passively (via intermittent emails) or in person with a significant lag (say, a lunch or dinner every 6 months, which is like dog years in today’s tech cycle).

So even if an emerging manager would love to double down on likely winners (& it also makes sense from a portfolio construction perspective), I question their ability to effectively underwrite follow-on rounds under these constraints.

In this scenario, it ends up being either blindly following an external signal (“Tier 1 VC is doing the round, so it must be a good company”) or a gut (emotional?) call on the founder/ market (“I just love this founder and believe they will build an amazing company”).

Neither of these is an analytically rigorous way of deploying follow-on dollars.

Perhaps for emerging managers running smaller pre-seed/seed firms, the optimal answer is what Dave McClure had suggested some time back:

(1) Take as many shots on goal as possible with the 1st check, buying as much ownership as possible & at the lowest price possible.

(2) Instead of reserves, do one-off SPVs in significantly de-risked follow-on rounds (Series B & beyond).

PS: Benjamin Narasin of Tenacity recently shared some great insights around portfolio construction on an episode of the Team Ignite Ventures podcast.

After spending more than 2 decades in venture, here’s Ben’s portfolio construction:

  • Tenacity Fund I: $60M
  • $1-3M avg. checks, 10-20% ownership (am guessing ~30-40 companies?)
  • One-and-done first checks, no reserves, pro-rata rights passed on to LPs

Are Solo Founders Venture Backable?

With prevailing startup (particularly accelerator) dogma around solo vs multiple co-founders, the reality of how businesses actually get built the world over is quite different.

In various contexts, both in terms of new deals I am evaluating as well as some recent developments in the portfolio, I have been mulling over how I should be thinking about backing solo founders.

Classical VC guardrails tell me to stay away from solo founders. YCombinator has almost made the classic “two co-founders” team into startup dogma. In my past venture roles, I was taught to filter out solo founders in the first pitch meeting itself.

However, my lived experience of my own portfolio, as well as observing many more startups in various situations, tells me that this discussion deserves much more nuance:

1/ Anecdotally, at the pre-seed/seed stage, I have noticed that at least 20-30% of founding teams end up separating in the first 24-36 months.

Btw, this number aligns with the below analysis ChatGPT put together on this question:

So the reality is, as a seed investor, while you might be drawing comfort in backing the classical 2-person, “technical + GTM” co-founding team, it’s very likely to be a false signal, and if the company ends up surviving the valley of death, it will most likely fall back on one founder.

2/ Even in classical 2-3 person co-founding teams, one founder is usually the Alpha, the lead who inspires the core of the trust & conviction that investors build around the company. In almost all cases, the Alpha is also the CEO of the company (if the Alpha isn’t the CEO, then the team has bigger problems).

In my experience, until the Alpha doesn’t give up on the company, we all stay in the game, as even after team splits, the Alpha has the vision, tenacity, and storytelling skills to hire new talent, and even onboard another set of earned co-founders.

So, with the probability of founders splitting being significantly high, even while backing a full-stack founding team, the reality is that we as seed investors are really betting on the sole Alpha founder as the core kernel of the company.

3/ This is the one I have a real pet peeve with – another YC dogma that founders should always split the equity 50-50.

I understand what YC is trying to say by propagating this idea, and maybe it even makes sense in the specific context of its target persona: young, out-of-college people ganging up together on short notice to “attempt a startup”.

In my experience, this notion of a 50-50 split has turned out to be entirely disconnected from the overarching ground realities of how businesses the world over get built, how teams get structured as per both the risk each person takes as well as the tangible value they bring to the table.

One of my driving principles around early-stage investing is that, irrespective of tech or non-tech, AI or non-AI, Silicon Valley or India, some fundamental principles of “how to build a new business” never change. Things like you need to target a very clear customer persona, your value proposition should achieve both the job-to-be-done and do it in a differentiated way against competition, the core unit economics of your business should be profitable, you need to be present where your customer is to drive distribution, the lowest cost producer will always have an advantage, etc.

These are principles that keep getting repeated across generations – from Charlie Munger & Warren Buffett to Sam Walton and Jeff Bezos. You can almost call them “Business Laws of Nature”.

I have repeatedly stress-tested and validated these principles both as a repeat founder myself as well as a venture investor for more than 15 years now. Each and every time, I have found these principles to be true, and whenever anyone has tried to pitch, argue, or sell any notion that violates any of them, the person has lost, and the principles have held their ground.

A dogmatic 50-50 equity split rule is in violation of these business laws. I haven’t heard even one generational founder, be it 1st-generation or a family business, ever talk about it. These people have built companies that have stood the test of time and delivered true value for decades to both customers, employees, and shareholders. If this isn’t something that they have acted on or professed, I am inclined to believe that this 50-50 split is more of a Valley YC dogma and shouldn’t be taken as set-in-stone advice.

In fact, let me give you a different, and might I say radical, perspective from the non-tech, real operating business world. In his amazing book with a super-cheesy title – “How to Get Rich”, OG media founder Felix Dennis (who started as a college dropout, with no family money, created a publishing empire, founded Maxim magazine, & made himself one of the richest people in the UK) had this to say on ownership (sharing excerpts):

To become rich, every single percentage point of anything you own is crucial. It is worth fighting for, tooth and claw. It is worth suing for. It is worth shouting and banging on the table for. It is worth begging for and groveling for….

…Never, never, never, never hand over a single share of anything you have acquired or created if you can help it. Nothing. Not one share. To no one. No matter what the reason—unless you genuinely have to.

So, if you refuse to believe in the 50-50 equity split startup dogma, implicit in this is the argument that, more than solo or multiple founders, what really matters is whether the ownership split between the starting bunch of individuals makes sense from the perspective of the fundamental business laws of nature.

TLDR: the devil is in the details…

Therefore, my working POV is not to discount single founders straight-up. Especially if the founder is a compelling Alpha, has shown the ability to hire top talent, and execute on the business, it makes sense to dive deeper into the L2 and L3 level details around the genesis history, why the founder has chosen this operating model, what it says about their behavior patterns, and what their go-forward thinking is on this topic.

Note: if you are intrigued by this topic, check out one of my earlier posts – ‘Co-founder Breakups’, wherein I share some insights/patterns from various co-founder breakups I have witnessed over the years.

When To Sell? – Part 2

A pandemic unicorn, a 400x Indian compounder, and a public SaaS unwind.

At first glance, unrelated. But there’s a single thread connecting them that provides an answer to the eternal question: when should you sell?

Recently, I came across a podcast clip on X where a European seed investor was reminiscing on how she had written an angel check in Hopin (a hype-unicorn from the pandemic era), which got crazily marked-up from a ~$2.5M pre-seed valuation in 2019 to ~$7.6B Series D valuation in 2021, and she didn’t sell even while the founder took $200M off the table via secondary.

This reminded me of my “When To Sell” post from Sep 2023. I think this is a good time to do Part 2 of that and add some recent examples to this discussion.

Fractal Analytics

An Indian analytics company called Fractal Analytics, which was founded in 2000, recently went public in India. What is fascinating is that their first angel investor, Gullu Mirchandani (who had started Onida Electronics back in the early 80’s, and launched India’s first-ever color television), continues to hold his initial position more than 2 decades out, even though it has run up by more than 400x. Note: check out this excellent post by Rahul Mathur (DeVC) on this investment by Gullu.

Freshworks

Girish Mathrubootham, founder of iconic Indian cross-border SaaS company Freshworks, stepped down as the CEO in Sep 2025 and became a full-time AI VC.

With the recent rout of SaaS stocks and the market consensus being that these companies are going to face secular headwinds from AI going forward, in hindsight, the Freshworks founder stepping down was a leading signal that the SaaS story was decisively over.

While folks can make up many reasons behind his departure, the fact is that a founder who is barely 50 years old is voting for where he’d like to devote his energy, relative to the opportunity cost of all the things he can pursue. Note: I asked ChatGPT to do a quick analysis of all Freshworks stock sales done by Girish. He sold zero shares in 2022. But post the launch of ChatGPT, sold ~$39M of stock in 2023 and ~$49M in 2024.

Essentially, any public market investor who didn’t entirely exit their Freshworks holding when Girish stepped down needs to have their judgment severely questioned.

Map To The Founder

What is a common learning from these cases of Hopin, Fractal, and Freshworks? It’s a learning related to exits that all experienced GPs frequently cite:

Investors should map their exit to the founder. If the founder is selling, you should sell. If the founder is holding, you should lean towards holding.

Applying this framework to the above 3 cases:

1/ Assuming that the Hopin angel knew that the founder was selling (even if the exact amount was unknowable), she should have immediately sold at least some part of her holding.

2/ Fractal had 5 co-founders in the beginning. Three of them left in 2007. But even as of today, 2 original co-founders continue to hold fort in full-time operating roles – Srikanth Velamakanni as Group CEO and Pranay Agrawal as US CEO.

This is perhaps why Gullu didn’t sell over all these years – he astutely mapped his position to the founders, and as long as even a couple continued to believe in the business and were competent enough to run it, he continued to hold.

3/ In the case of Freshworks, every significant stock sale by the founder should have been a warning signal for public market investors to re-evaluate the business as well as the price relative to underlying business quality.

On the founder’s full exit in Sep 2025, astute investors should have mapped their strategy to how the founder is voting with his time and money, and completely exited their position.

So, the experienced venture GPs were actually right! Adding a simple mental model for the “when to sell?” decision for myself as a VC – map to what the founder is doing.

Venture Capital Portfolio Construction: Diversify Then Concentrate

How many shots should a VC fund take? When should you double down? And how concentrated is too concentrated?

In this deep dive, I unpack practical portfolio construction lessons from Roger Ehrenberg (IA Ventures), Rory O’Driscoll (Scale Venture Partners), and others on diversification, reserves, follow-ons, and building multiple fund-returners in today’s venture environment.

Portfolio construction in venture capital has been an ongoing obsession of mine for the last few months. I have been devouring & recording any and all insights that various GPs have shared on podcasts, blogs, and social media posts.

In particular, I found this 20VC episode to be particularly helpful as Roger Ehrenberg (OG Founder of IA Ventures; now runs Game Changers Ventures) shared thoughts & anecdotes from his journey across multiple IA Ventures funds. The back-and-forth that he did with Jason Lemkin (SaaStr) and Rory O’Driscoll (GP – Scale Ventures) teased out aspects of venture portfolio construction that are rarely discussed in detail.

Here are the main insights I captured from this episode:

1/The extent of diversification should depend on how confident you are of the quality of shots

Rory mentions that “Diversification reduces your downside but also reduces your upside”. So, the number of shots on goal a manager should be taking should flow from how confident they are in the quality of their deal flow.

Btw, it was interesting to know that even the best managers start off with adequate diversification, even at later, less-risky stages of investing. As Rory shared, even a top-tier firm like Founders Fund had 31 shots in its Growth Fund 1. As it developed more confidence, Fund 2 had mid-high teens portfolio size, and Fund 3 is aiming to have 10.

My commentary: this also checks out with public market portfolio construction, wherein the managers with high confidence and established track records tend to opt for a 10×10 portfolio (10 stocks of 10% allocation each).

2/ IA’s classic seed portfolio construction: 20-25 constituents over a 3-4 year investment period

This lines up well with what has now become a market-standard seed portfolio construction.

My commentary: I would like to tie this back to the portfolio construction philosophy of Mike Maples, Managing Partner at Floodgate (Source: Venture Unlocked), wherein he believes “a seed portfolio becomes statistically diversified by 12, and beyond 25, you don’t add to diversification”.

3/ Roger goes hyper-concentrated on the 2nd and 3rd checks

He shares that IA wrote follow-on checks aggressively only in companies where they built high conviction on the team, and if assuming it continued to execute at this speed, that the market was large enough to support a big outcome.

So, they start with 1-2% of the fund at entry, then the 2nd check can be 5-7% of the fund.

The end outcome for IA is ~75% of deployable capital concentrating in the top 3-4 companies by the end of the fund.

4/ This portfolio construction depends on attractive entry valuations

Roger shares how the first check is relatively small (~$750K from a $100M fund) and, therefore, the only way to get decent ownership at entry is to invest at modest valuations.

My commentary: Not sure how this will hold up in the age of AI. And therefore, I am guessing that implied in this strategy is the fact that:

(a) You have to be fairly non-consensus; and/or

(b) Get discounted entry valuations due to your brand.

In Roger’s case, both of these appear to be true.

  • While everyone is doing AI, he has started a sports-tech focused fund, validating point (a).
  • He is also a top-tier brand of choice as a GP, validating point (b).

My commentary: the chosen portfolio construction has to be congruent with the GP’s track record and position in the ecosystem.

5/ “You need to start off with a significant element of diversification and then concentrate down.“

Rory summed up Roger’s thinking really nicely in this 1 sentence, and it has been stuck in my head since then.

My commentary: It almost reminds me of poker, wherein you are folding a lot and then, in a few hands, when you have high conviction that the odds are significantly in your favor, you go all-in.

6/ The current VC environment is pushing even the most concentrated VC firms to diversify a bit more

Rory shared how they shared with their LPs that the finish line for an exit has moved from $200M ARR to $400M ARR, and therefore, you have to hold these investments for longer, thus increasing risk and liquidity.

As a result, a Series B firm like Scale that typically has a concentrated sub-20 constituents portfolio is now thinking of pushing it up to 25.

7/ Portfolio construction should be based on a “temporal, many turns” game

It’s like how, as each card gets opened in a game, the probabilities of your hand keep increasing or decreasing. That’s why deploying reserves over multiple turns is a key part of any venture strategy.

Rory captured the mindset of approaching reserves really nicely as follows: “You don’t know everything and there is no 100% certainty, but at the margin, you know more than the incoming investor, so you can tilt things slightly in your favor”.

Rory also cited an analysis that Scale has done internally that says: “If you get the first 2 years of revenue that we underwrote, then the probability of getting a 5x goes up from 30% to 70%”. So once you have revenue and product-market fit, then you do have a lot of information to make an informed follow-on decision.

My commentary: This also checks out with something Anand Lunia of IndiaQuotient said a while back on a podcast (paraphrasing): “We note down what the founder said they will execute in this quarter, and then tally it with what they actually ended up achieving, in the next quarter’s update”.

Essentially, in a random, highly-risky game like early-stage venture, revenue expectations being consistently met over a few quarters counts as a major signal than what many would imagine.

8/ There are many paths to creating a multiple fund-returner

Roger mentions how there are many paths to getting to a multiple fund-returner outcome. He cites the following examples from the IA Ventures funds:

(a) The Trade Desk (TTD): didn’t have a product in market for 1.5 years, multiple bridges, multiple near-death experiences. But then once it hit, it just zoomed.

IA owned 17% of TTD at IPO, out of a little seed fund.

(b) Wise: kept chugging along right from Day 0. It was as close to an “up and to the right company from the beginning” as they have seen.

Btw, IA’s first check into Wise was $750K at a $5.5M post! Then Valar came in at $20M valuation, and IA doubled down. Then Valar came again at $160M valuation, and IA tripled down yet again.

IA had $9M over 4 checks in Wise, which is a 9% of the fund position.

IA owned 13% of Wise at IPO, out of a little seed fund.

(c) Datadog: compared to the previous two, IA owned only 2% at IPO. They did the seed, RTP led the A, and Index led the B. The valuation was really high compared to progress, so they didn’t back up the truck on follow-ons in seed and A. But it was still a multiple fund returner because the size of the outcome was so large.

(d) Digital Ocean: 1st check was $3M (3% of the fund). When a16z led a $37M Series A, IA wrote a $7M check (7% of the fund).

9/ What if the follow-on check is at a really high valuation? Do you still do it due to high conviction but perhaps lower expected returns?

This is where the insights get really interesting, as this scenario fits very well with what’s going on in AI right now.

Roger recommends that each follow-on check be evaluated independently from the previous check. So, it’s about the risk-adjusted MOIC that’s possible on that check.

So, if say the follow-on is at a $300M valuation, and you believe that it can be a $100B company at exit, he recommends still writing a meaningfully large check up to say a risk-limit % of the fund (say 10% of the fund).

He illustrates this with a real example. In the case of Trade Desk, IA invested in the pre-seed, bridge 1, bridge 2, and a small Series A at $16M post-money. Then, after a few years, the company’s next round was a $20M primary + secondary at a $280M post. Even in that round, IA invested a $3M check out of a $50M seed fund. That $3M returned $40M on exit (13x MOIC).

Essentially, Roger looks at venture as a risk-adjusted, cash-on-cash business.

10/ The Peter Thiel philosophy on follow-on rounds

Rory cited Peter Thiel’s philosophy on follow-on rounds that I, too, listened to many years back and have also executed on in my own doubling-down decisions:

“Whenever a reputed new investor is doubling down on a company, it’s almost always a good idea to invest”.

11/ The value of cross-funding investing

Jason mentioned that when you are trying to concentrate 10% of your fund into the winners, you run the risk of running out of capital fairly quickly and losing out on new opportunities that might come your way.

Roger cited cross-fund investing as a solution to this problem. So if the LP base is fairly consistent across funds, you can keep doubling down on the winners in Fund 1 from Fund 2. So, instead of investing out of say a $100M fund, you are investing out of a $100M Fund 1 +$160M Fund 2 = $260M fund corpus.

How the EU–India Deal Raises the Ceiling for Indian Startups

The EU-India trade deal marks a meaningful inflection point for Indian startups: expanding export markets, diversifying sources of capital, and raising the long-term ceiling for India-to-the-world technology companies.

As a cross-border investor, here’s why the EU-India trade deal is making me even more excited about the India-to-the-world tech story:

1/ Should provide a fresh set of tailwinds to the India export story. This was much needed after the lacklustre results of the “Make in India” initiative over the last decade.

2/ In the past decades, the Indian offshore services story, the software exports story, and the cross-border SaaS story have been heavily reliant on the US. While the EU is nowhere close in terms of depth of market & innovation-buying behavior, its addition as a viable market derisks the Indian tech story to some extent.

3/ Given EU countries are leaders in critical technologies, in addition to being potential customers for the next-gen of Indian deeptech companies, I also expect them to engage as valuable “partners” across the board including in aspects like technology transfers that enable indigenous manufacturing, joint ventures in areas of mutual interest, and perhaps, increased collaboration between research institutions and organizations too.

4/ India still needs enormous foreign capital to get to the $10,000 per capita GDP mark. In addition to long-term US capital, which I expect to remain committed to India both on the private and public side (despite recent FII selloffs), deep sources of patient capital that reside in EU universities, endowments, insurance companies, century-old corporates, and multi-generational family offices should also step in and provide much-needed FDI for India.

5/ On enterprise software and deeptech, I have been underwriting the ability of Indian startups to serve the “Global South”, which largely remains under-covered by US companies. Now, with the EU being added as an open market for Indian exports, the TAM for Indian startups just goes to another level, which should ultimately translate into larger exit outcomes.

Of course, dealing with EU customers will have its own set of challenges compared to the US:

– Large and/or fast-growing markets like Germany, France & Italy aren’t native English speakers. Adapting to each language and culture is challenging.

– Constituent markets are quite fragmented, have really different cultures that have been at loggerheads in the past, and therefore, while it’s called a Union, serving it as a homogenous bloc might not be easy.

– EU customers aren’t classical early adopters and move really slowly in buying cycles.

– Many constituent markets have stifling regulations around things like data privacy, security, environment & labor, increasing inertia to innovate.

– EU operates on different labor norms, stronger worker protections, and stricter work-hour expectations that can slow execution compared to vibrant markets like the US, India, and China. Overseas companies, especially younger ones, might struggle to adapt & serve the expectations shaped by strong labor protections.

– Overall, I have observed over the years that EU customers are more skeptical of dealing with Indian companies and talent compared to, say, the US.

Nevertheless, this is a great development, and kudos to the Indian government and negotiating teams for pulling off a masterstroke. Now comes the hard work of turning legal clauses into tangible business outcomes for both sides.

The real test will be whether founders, investors, and operators can move fast enough to capitalize on this opening.

My Blindspots As A VC

On misreading founders, moving too fast, and why portfolio construction is my safety net.

Over the past few weeks, I have been doing a retrospective analysis of the Operators Studio portfolio. Given that I have adopted a “founder-first” investing style, I have been specifically trying to analyze cases where I got a wrong read on the founder.

Startups can struggle/ fail for N number of reasons. Especially as a seed investor, most of these externalities are out of your hands. Therefore, while doing such analysis, I like to keep reminding myself not to fall into the “Resulting” trap.

Annie Duke defines Resulting as “the cognitive bias of judging a decision’s quality solely by its outcome, rather than the decision-making process itself”. Top poker players are really good at avoiding Resulting while studying their plays post-facto.

So when outcomes turn out to be negative in a seed investment, rather than fixating on “why the company failed?”, it’s more useful to ask “how should the investing process be improved for future deals?”. And in my context, it’s typically the process of evaluating the founder.

Coming back to the retro analysis I have been doing on my deals, I have been able to identify a couple of blind spots that seem to be showing up repeatedly. Here’s a deep-dive on each of them:

1/ Getting blindsided by the founders’ pedigree

Sometimes, founders show up with just a jaw-dropping pedigree – IIT Bombay Computer Science, Stanford PhD, top leader at Big Tech etc. This pedigree is typically also accompanied by a strong show during the pitch meeting, demonstrating differentiated access & networks, and just overall self-belief that screams “I am awesome!”.

Looking back on such pitch meetings, it’s very easy as an investor to get carried away by this pedigree & show. However, as I am learning with some pain, pedigree doesn’t automatically translate to the many enablers of eventual success in a founder – grit, the ability to pound pavements selling stuff, controlling your ego, resolving conflicts, and frankly, eating glass during tough times.

One of my key maxims learned over a long venture career is to always distinguish whether the person is a strong professional or a (potentially) strong founder. Both are very different things.

Even with this hard-earned insight, it turns out that executing this day in and day out is extremely hard. Even the best of us get swayed by past track records.

This retrospective is a self-reminder to bring back this maxim as part of the core of my investing process.

2/ Pulling the trigger without spending enough 1:1 time with the founder

My natural style as an investor is highly instinctive. This often manifests in quick Yes’s during the first pitch meeting itself.

Over a long career, this has mostly benefited me. Almost all my major wins were quick Yes’s. But there is a difference between “moving with a pure initial instinct” and “being trigger-happy”.

In a few cases, I have pulled the trigger without spending enough 1:1 time to peel the layers on a founder. If I go one level deeper, in most cases, this was due to some fear – fear of being on the wrong side of deal heat & not getting allocation, fear of feeling disadvantaged as a relatively small check writer, fear of deployment pressure (“I need to do a deal this month”).

These fears are particularly amplified by the current investing environment, where seed deals move in days, where lead VCs have particularly sharp elbows, and where many founders fall prey to becoming over-transactional during the fundraising process.

I have come to realize that these fears are incredibly counterproductive to a long & sustainable venture career. Seed investing is at least a decade-long journey that is full of ups and downs. An important way to create a strong initial foundation that then delivers a consistently good experience to both the founder and the investor over multiple years is to dedicate enough effort upfront to build trust & a mutual connection.

When this trust & connection exists, the wins taste exponentially sweeter, and the pain of losses gets blunted.

Any diversified enough venture portfolio of decent quality is highly likely to catch at least a couple of winners. But the key to amplifying success over decades, both as a founder and as an investor, is to play repeated games with a set of highly trusted people. The starting point of these relationships is almost always the foundation of trust built during the first-ever transaction between two people.

Even empirically, if I study all my deals since 2011, whenever I have built a strong mutual connection with a founder upfront, the eventual outcomes have almost always been positive economically and/or experientially (the randomness has only been in “how positive?”).

Therefore, this is again a self-reminder that I should ensure I am devoting enough upfront time to build trust & a mutual connection with new founders I meet. And once I have built an informed instinct around a new person, given I now have 15 years of on-ground data on how it usually pans out, I should default to trusting & following my judgment without any fear.

The final line of defense against these blind spots…

Even at our most introspective and self-aware selves, we still have the same monkey brain that has been wired by hundreds of thousands of years of evolution. Even the best of us should expect to keep falling prey to various kinds of cognitive biases and blind spots across multiple deals.

The mark of growing up as a venture investor is accepting this truth and then acknowledging at a deep, internal level that the only line of defense against our own foolishness is portfolio construction.

As a young VC Associate way back in 2011, I used to always wonder why OG VC GPs kept harping on portfolio construction, spending hours poring over Excel sheets that frankly, had most of the numbers pulled out of thin air (an undeniable fact of any financial modeling efforts in early-stage venture).

Similarly, when I decided to come back into venture in 2023, I kept hearing how LPs care a lot about portfolio construction. And that it is the difference between someone being just an investor vs being a professional fund manager.

Studying my still fledgling portfolio today, I can already see how following even a rudimentary portfolio construction strategy has saved my a** several times already, and its impact will manifest in major ways over the remaining Fund life.

When you experience something working in real life, your buy-in starts growing organically, giving it higher chances of eventually becoming a sustainable habit. I can see this playing out with my rapidly growing appreciation of all the beauty and nuances of portfolio construction.

In fact, I can guarantee that 2026 will see my study and obsession with VC portfolio construction go many levels higher, and thankfully, I don’t need a New Year’s resolution to make it happen.

Note: My next post will be on some portfolio construction insights I have gleaned from listening to Roger Ehrenberg, Founder of IA Ventures. Stay tuned for that!

The “Mission-Pitch”

To break through AI noise in the Bay Area right now, figure out your “why should anyone care?” pitch.

Important tip for international founders who have recently relocated to SF and are looking to build their networks here for customers & fundraising:

As you meet new people, it’s important to have an abstracted-out, 10-20 second mission pitch that clearly outlines “why should anyone care?”.

More than market analysis, facts & data, this pitch should have a strong underlying emotion that can immediately connect with someone who might have an overlapping world view.

There is immense noise in the Valley right now, and every space/ vertical has tens of startups going after it. All pitches sound similar, most founders have similar backgrounds, and all content looks the same.

Breaking through this clutter is hard, especially for folks who don’t have a high-signal, prior track record in the Bay Area.

In these cases, dialing up the personal authenticity quotient big time, and having a clear “Mission-Pitch” with a strong emotional pull can be extremely helpful in winning over new relationships.

In an ecosystem where every decent startup is flush with capital and early traction, founders need to 1) go deep, 2) go sharp, and 3) manage the psychology of market participants in order to stand out.