History doesn’t repeat itself, but it does rhyme: VC William Peng

Investors recognize patterns. The introspective ones put effort into making sure they’re following the right ones.

Williamsburg based venture capitalist William Peng, a partner in Red Swan Ventures, just might be one of those.

“Red swans,” according to the company’s webpage, are ventures that are successful despite the fact that no one saw them coming.

Before turning VC, Peng helped to design Drop.io before it was acquired by Facebook and has written about how he’s making picks for Red Swan.

At Red Swan, instead of having a list of checkboxes we pattern-match to, we have a framework of an iconic entrepreneur in mind, which we aspire to, both in ourselves as well as in the founders we back.

We believe that these founders correlate highly with movements that have large followings of passionate people (customers, employees, investors, advisors) who would follow them to the ends of the earth.

Red Swan has made some strong picks, including ecommerce apparel company Bonobos, eyeglasses fashion firm Warby Parker and Center City Philadelphia-based business analytics business RJ Metrics.

That perspective lead to another post by Peng: history does not repeat itself, but it does rhyme. Using formulas to make the final decision about an investment can be worrisome, he said. Instead, he argues that the final winnowing should be done more by a process than any sort of rigorous evaluation tool:

At the core of venture capital decision making is pattern matching. But the paradox of venture capital is that the same pattern matching that helps you identify winners can also pigeonhole your decision making into unoriginal, non-power law groupthink.

Pattern matching as a decision making process needs a corollary as a more satisfactory explanation for pattern matching.

And he gives some interesting examples of tests for breaking an investor out of their own set of preconceptions, such as the $20 Starbucks Test (if anyone ever does this, please let us know about your experience) and problematizing the whole notion that similar ventures compete based on matching each other in the basics and then, somewhere, upping the game.