Insights into Running a Micro VC and Building Successful Marketplaces

Insights into Running a Micro VC and Building Successful Marketplaces

Introduction:
Running a micro VC fund and creating successful marketplaces are both challenging endeavors that require careful planning and execution. In this article, we will explore the lessons learned from running a micro VC fund and the hierarchy of marketplaces. By identifying common points between the two, we can gain valuable insights into building enduring value and achieving growth.

1. Understanding the Realities of Running a Micro VC Fund:
   Running a micro VC fund is not for the faint of heart. It is important to recognize that most VC funds are failures, just like startups. In fact, statistics suggest that 9 out of 10 VCs will not even achieve 1x returns. Therefore, it is crucial to do thorough homework and talk with multiple micro VCs before deciding to venture into this field.

Financial stability is also a significant factor to consider. If you are not in a solid financial situation, the personal toll of running a micro VC fund can be detrimental. The majority of the fund's capital needs to be allocated for investing, leaving limited resources for personal livelihood or other expenses. It's essential to have a realistic understanding of the financial constraints involved.

2. The Hierarchy of Marketplaces:
   When it comes to building successful marketplaces, it is crucial to focus on creating meaningful happiness for both buyers and sellers. The marketplace that can make its participants genuinely happier than any substitute will emerge as the winner. Gross Merchandise Volume (GMV) is often considered a vanity metric that can lead you astray. Instead, the key to enduring value lies in consistently increasing the average level of happiness per transaction.

Size alone does not guarantee success. Even the largest incumbent players are vulnerable to new entrants who can offer a superior experience. Therefore, happiness, not scale, should be regarded as your moat. By pursuing genuine happiness, you can achieve sustainable growth. It is worth noting that choosing a smaller market initially may be a wise approach, as long as it is not a dead end. The best marketplace founders are adept at identifying the right opportunities to pursue and sequencing their growth accordingly.

3. Connecting the Dots:
   While seemingly unrelated, running a micro VC fund and building successful marketplaces share common threads. Both require a deep understanding of the market and your target audience. In the case of micro VCs, thorough research and conversations with industry experts are essential. Similarly, marketplace founders must identify the cross-section of their cohorts that retains the best and double-down on that use case or market.

Furthermore, both endeavors require a focus on quality growth rather than vanity growth. For micro VCs, this means prioritizing enduring value over mere financial returns. For marketplace founders, it entails striving for happiness as the ultimate measure of success. Net revenue retention serves as a valuable metric in assessing happiness levels.

Conclusion:
Running a micro VC fund and building successful marketplaces are challenging undertakings that require careful consideration and strategic decision-making. By understanding the realities of both endeavors, we can identify common points and valuable insights. Here are three actionable pieces of advice to take away:

1. Thoroughly research and seek advice from industry experts before starting a micro VC fund.
2. Prioritize happiness over scale in building successful marketplaces.
3. Focus on quality growth and enduring value rather than vanity growth.

By incorporating these insights and advice into your approach, you can increase your chances of success in the dynamic worlds of micro VC funding and marketplace creation.