VC Made Simple: Here are 4 rules that separate the winners from the losers…

From the desk of Miles Everson:

Hello, everyone. Happy midweek!

Welcome to “The Independent Investor.”

In these articles, I publish thought pieces with the hope of helping you make wise decisions in terms of finance and investing.

For today, I want to echo with you these four simple rules for venture capital (VC) success.

Read on below to learn more!

VC Made Simple: Here are 4 rules that separate the winners from the losers…

The investment world thrives on stories—bold bets, disruptive ideas, and fortunes made (or lost) on what once seemed like a shot in the dark.

However, behind every headline about a startup raising millions lies a deeper question:

You see, this isn’t just about chasing trends or following hype. For serious investors, especially in today’s AI-fueled landscape, understanding the difference between a fleeting pitch and a true opportunity is essential.

That’s exactly what Rob Spivey , Director of Research at Valens Research , recently emphasized as he outlined four straightforward rules that can help investors navigate the unpredictable world of venture capital (VC) .

Spivey drew from real-world examples and frameworks trusted by veteran investors to provide practical insights into how professionals can separate potential winners from inevitable disappointments.

Here’s what he had to say…

• Rule No. 1: Look at the Fundamentals

  According to Spivey, fundamentals remain the bedrock of smart investing, even in the often-unconventional world of startups.

  While traditional businesses are evaluated based on revenue, profit margins, and financial ratios, early-stage companies don’t always have those metrics in place.

  This is where the Bell Mason Framework , developed by engineer Gordon Bell and entrepreneur Heidi Mason, comes into play. Instead of focusing on revenue that may not exist yet, the framework evaluates progress through areas like product development, team growth, and market traction.

  Spivey explained that these indicators provide a window into whether a startup is building toward long-term success or simply burning through capital.

  By understanding the fundamentals in this way, investors can better measure risk, monitor progress, and make smarter decisions on when to enter or scale their investments.

• Rule No. 2: Focus on Capital Allocation

  Money in the hands of a startup founder is both a lifeline and a test. Spivey cautioned that raising funds is only half the battle; what truly matters is how that capital gets deployed.

  Too often, founders equate new funding with the need to rapidly expand headcount. While a bigger team may look impressive, it doesn’t always translate into sustainable growth.

  Startups that scale staff without first building a solid customer base frequently end up downsizing just as quickly.

  Spivey stressed that capital should fuel growth strategically: Investing in research, carefully expanding teams, and preserving reserves for future opportunities.

  Founders who burn through cash too aggressively risk running out of runway before achieving meaningful traction, leaving investors with little to show for their capital.

• Rule No. 3: Prioritize Transparency

  In venture investing, where risk is inherently high, transparency is non-negotiable . Spivey noted that the relationship between founders and investors should be built on trust , and that requires open communication about both victories and setbacks.

  A CEO who only shares the highlights risks blinding investors to underlying problems until they’ve spiraled out of control. Conversely, one who downplays milestones makes genuine progress appear as nothing more than lucky breaks.

  For investors, Spivey advised looking for founders who embrace transparency, as it signals a culture of accountability and realistic planning.

  In his view, transparent management teams are far better positioned to weather challenges and build lasting businesses.

• Rule No. 4: Know Your Circle of Competence

  Perhaps the most universal lesson Spivey highlighted is the importance of knowing one’s own limits . Investors who stray too far outside their circle of competence—whether into unfamiliar industries or trendy sectors they don’t fully understand—set themselves up for two common mistakes.

  First, they are more likely to overreact when obstacles arise, interpreting manageable issues as catastrophic.

  Second, they may fail to recognize genuine competitive advantages when they appear, misjudging marketing spin for actual strength.

  Spivey reminded investors that every founder is trying to win their money. Without deep industry understanding, it becomes nearly impossible to separate compelling pitches from truly sustainable businesses.

Separating the Signal From the Noise

You see, venture capital will always carry outsized risk. The challenge, then, for investors is not to avoid risk altogether, but to approach it with discipline and clarity.

Spivey’s four rules—focusing on fundamentals, evaluating capital allocation, demanding transparency, and staying within one’s circle of competence—serve as a practical compass.

Sure, they don’t eliminate uncertainty, but they help investors filter the noise and focus on what really matters.

For professionals navigating today’s surge of opportunities, particularly in sectors like AI, these insights provide more than a checklist.

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s The Independent Investor!

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