14 Lessons from 14 Years: Inside QED’s Fintech Playbook
Originally a thread on X/Twitter:
QED Investors has invested in 150+ startups over 14 years and consistently delivered outstanding results. Today, we announced a new $1B+ vehicle to continue on this journey. In honor of this milestone, here are my 14 biggest insights from 14 years at QED:
2/29: Insight #1: It’s more important to be an average Investor in a target rich ecosystem than a great Investor chasing windmills. It’s been a great decade for #fintech which made our jobs easier.
3/29: Unseating profitable players is a great starting point. We’ve invested in 20 companies now valued at > $1B+ (with more right around the corner). Some are generating $1B+ of revenue and very profitable. Taking high margin revenue away from incumbents is a great strategy.
4/29: Insight #2: Shipping code is life. Great companies ship high quality code frequently. The compounding effect over time is critical and an advantage that shouldn’t be underestimated. “Banks are giants, they hold the might. Yet slow to move, here lies their plight.”
5/29: Coding is similar to studying the stars. To look at a star 50 light years away means looking 50 years in the past. To ship code 1 year after having an idea means addressing problems and customer preferences that are 1 year old from a market perspective.
6/29: Insight #3: Founders only give up when they run out of cash, not when they run out of ideas. All backable Founders are made of problem-solving DNA and believe that every problem has a solution. A Founder will pivot/refactor their business until their bank account is zero.
7/29: The most difficult part of our jobs is helping passionate and likeable Founders wind-down or sell a struggling business. Landing the plane while simultaneously protecting a Founder’s identity requires being part Investor/part Counselor. Tough to do well.
8/29: Insight #4: Confidence empowered risk taking which drove returns. There are no “sure things” — every investment comes with risk. Understanding risk is a beginner level skill. Taking the risk is a more advanced competency. Embracing risk earns you a black belt.
9/29: Our first write-offs came before our first big mark-ups which made us question our chops as investors. It was our own money so nobody was looking over our shoulder and putting pressure on us, but the early write-offs did hurt.
10/29: Over time, we internalized that investing was about a distribution of outcomes vs. any single outcome. Our successes enabled us to double down on our way of thinking because we saw it was working.
11/29: Insight #5: Concentrating effort and investment dollars in a geography before everyone else discovers it can be magical. Investing behind mega-trends in an emerging geography is a great way to generate significant alpha.
12/29: Our hit rate of 10X+ investments is superior in emerging geos than in well served geos. Founders benefit from seeing what works elsewhere and can focus on adapting already proven solutions for their market. It’s also nice not having to compete against 10 look-alikes.
13/29: Insight #6: Being an exceptional storyteller is a necessary skill for Founders. Storytelling doesn’t directly crack the code on an unproven business but it does create tangible value for Founders/Investors by catalyzing critical resources.
14/29: Great storytelling attracts and retains talent. Great storytelling shapes the marketing messages used to intrigue and onboard customers. Great storytelling speeds up diligence and lands great Investors/capital. Great storytelling makes everything easier.
15/29: Insight #7: Momentum is a real thing and needs to be respected. The market is the ultimate judge, jury and executioner of value propositions and it speaks through the language of momentum. Momentum is the market telling a startup that it’s on the right track.
16/29: Winners almost always emerge within 2 years of an initial investment. Our best companies started strong and rarely encountered periods of slow growth. Our “red” companies occasionally made it to “yellow” but never permanently to “green”.
17/29: Insight #8: What goes up can come down. When corrections occur they typically sweep across an entire sector. Multiples can compress quickly and when they do well-capitalized companies ride out the storm better than thinly-capitalized companies.
18/29: Investors don’t see periods of multiple compression as “buying opportunities” the same way that value investors do in the public markets. Investors would rather wait for new, clean opportunities than put money into companies that have fallen from their peaks.
19/29: Insight #9: A common “Type 1 error” we made was compromising on the quality of the Founding team if we fell in love with the problem/solution they were chasing. Leadership attracts and retains talent. Leadership steers the ship. Leadership matters.
20/29: Insight #10: A common “Type 2 error” we made was turning away amazing teams tackling big problems when they didn’t have a roadmap that systemically de-risked the business over time. Some of the best Founders are able to will a business into existence.
21/29: Some of today’s most valuable companies figured out their business models down the road after they cracked the code on a single driver of their business. We missed some great businesses that maniacally focused on the customer and punted everything else into the future.
22/29: Insight #11: Cracking the code on a business is independent of the size of its addressable market. The implication is that it’s better to invest in startups that have large pools of target customers because once the code is cracked they’ll have more “doublings” to chase.
23/29: Insight #12: Video has more signal than a photo. The materials investors review during diligence are the equivalent of being handed filtered and touched-up photos. They have signal but can be photoshopped to make the story look better than it really is.
24/29: Getting to know a company over time is the equivalent of seeing raw footage in video form. And if you’re an active, existing investor, you get to participate in the video as it’s filmed. Sometimes there isn’t a choice, but a photo is a poor replacement for a video.
25/29: Insight #13: Contingent probabilities doom most startups. Most businesses are complex and need three, four and sometime five things to go right in order to succeed. If a business model has many necessary “ands” then it’s stuck in the world of contingent probabilities.
26/29: Some Founders string together back-to-back-to-back wins and defy the odds of failure, but most can’t outrun the probabilities. The best investments are in startups with scrappy Founders who find ways to break apart contingencies and discover alternative routes to the goal.
27/29: Insight #14: Generating successful outcomes is easier and more fun as a team sport. The odds of success increase dramatically when Investors and Founders agree on a unified mission/strategy but come to the table with unique skills, relationships and resources.
28/29: Unfortunately, the converse is also true. Diverse opinions about a startup’s strategic direction can slow positive progress and crush all-important momentum. “A good plan violently executed now is better than a perfect plan executed next week” – Patton
29/29: I’m proud of the entire @QEDInvestors team and the great Founders who we’ve had the pleasure to work with. I’m equally excited about the opportunity in front of us and incredibly thankful for our supportive LPs who are at our side!!!