Have been thinking about a new mental model for early stage investing (angel till Series A; dynamics are different Series B onward) — I call it “Optimistic Arbitrage”.
‘Optimistic’: the art of seeing beyond “what is” and “what is reasonably expected”, to “what if” and “what it could become”. Proof points for the former are traction metrics while the latter is driven by vision, belief and a unique world-view.
‘Arbitrage’: ability to see what the ‘market’ isn’t seeing in an opportunity. In my experience, this can be split at a macro-level into 1) ‘team’ arbitrage — seeing in people what others don’t see, looking beyond traditional pattern matching, recognizing non-obvious talents, and 2) ‘opportunity’ arbitrage — spotting a problem that exists or will exist soon enough, but which isn’t yet obvious or sexy enough for the ‘market’ at large.
One of my realizations is, to effectively pull-off ‘Optimistic Arbitrage’, you of course, need to have a certain kind of personality (positive, believer, low tolerance for cynicism, less complaints and more execution). But more importantly, you need to be enriched by diverse life experiences & exposed to a variety of business, cultural & personal contexts-this essentially, creates a strong ability to connect the dots & look beyond the obvious.