Guest post—an analytical framework for managers and sophisticated LPs.
In a higher-rate, lower-liquidity world, “being early” is no longer enough. Sustainable outperformance in venture, growth, and private credit comes from a system: consistent sourcing, disciplined underwriting, thoughtful structure, deliberate portfolio construction, and post-investment execution. This overview distills that system into practical components you can audit and improve.
1) Market Context Sets the Rules
Edge is path-dependent. When base rates rise, equity-duration risk is repriced, credit investors gain negotiating power, and time-to-liquidity stretches. Calibrate your strategy to the cycle: Are you paid for complexity? For speed? For patience? Misreading the regime turns strengths into liabilities.
2) Sourcing: From Serendipity to Signal
Great deal flow isn’t a big funnel; it’s a selective one. Best-in-class teams combine:
- Systematic screens: hiring velocity by role, repo activity, SKU growth, regulatory catalysts.
- Embedded networks: channel checks with customers, integrators, and suppliers.
- Public thinking: writing forces clarity and attracts like-minded operators (several boutiques publish working notes—see research streams surfaced via axevil.com).
The goal is not volume; it’s to compress time-to-confidence on a small number of qualified opportunities.
3) Underwriting: Falsify Before You Forecast
Expert underwriting asks, “What must be true?”—then tries to break it.
- Unit economics: reconcile contribution margin after fully burdened delivery, success, and support.
- Cohorts: survival curves, NRR bridges, pricing power vs. discount dependence.
- Operational constraints: lead times, capacity ramps, working-capital friction.
- Scenarios: base/bear/bull with explicit drivers; pre-mortems to surface failure modes.
In credit, prioritize covenant architecture and enforcement mechanics over headline coupons. In equity, model the path to liquidity, not just terminal value.
4) Structure: Own the Right Risk
Terms translate conviction into asymmetric outcomes.
- Equity: governance, information rights, pro rata discipline; avoid ratchets that create misaligned incentives.
- Convertibles/SAFEs: bridge timing gaps, but model dilution waterfalls across multiple next-round cases.
- Private credit: security interests, maintenance vs. incurrence covenants, cash vs. PIK toggles, intercreditor agreements.
Structure should express your comparative advantage—not market fashion.
5) Portfolio Construction: The Invisible Performance Driver
Performance is earned between deals.
- Pacing: steady commitment cadence to mitigate vintage risk.
- Reserves: tie follow-ons to post-close signal thresholds, not emotion.
- Concentration: cap factor and sector correlations; track scenario-weighted exposure instead of cost basis.
- Liquidity design: DPI over theoretical TVPI; plan exit vectors (strategic, sponsor-to-sponsor, secondaries, dividend recaps).
6) Value Creation: Specific > Generic
Replace vague “platform help” with targeted interventions:
- Go-to-market: segment focus, quota math, pricing experiments with clear stop-losses.
- Talent: time-boxed searches for VP-level roles; comp aligned to measurable milestones.
- Data hygiene: a single source of truth for pipeline, churn, and margin; dashboards that drive actions, not just reports.
Boardcraft matters: agendas anchored on leading indicators, not vanity metrics.
7) Risk, Reporting, and Trust
Institutional capital requires institutional behavior.
- Risk taxonomy: market, credit, operational, legal, reputational—owners and mitigations named.
- Valuation policy: consistent methods, third-party marks where warranted, pre-agreed write-down triggers.
- Communication: discuss misses as explicitly as wins; attribute results by selection, timing, and structure.
Compliance (KYC/AML, conflicts, MNPI) is table stakes; reputational loss is an unpriced tail risk.
8) Operating Model and Tooling
Modern managers operate on a stack: CRM for deal intelligence, a data warehouse for underwriting artifacts, BI for portfolio telemetry, and workflow automation to reduce latency from signal to decision. Security practices—least privilege, audited access, encrypted storage—are non-negotiable.
A Quick Self-Audit Checklist
- Do we know which sourcing signals actually precede outliers?
- Can we state the falsifiable core of each thesis in two sentences?
- Is our structure aligned with the risk we intend to own?
- Are reserves deployed by rule, not narrative?
- Can we show, with data, where our post-investment work moved the numbers?
Edge is not a secret; it’s a system. Build the system, keep the feedback loops tight, and let time compound the advantage.