One night, a policeman is doing his typical evening neighborhood walk. The sun has set, and he’s on high alert for any potential danger as he strolls slowly down the street. Soon, he comes across a professionally dressed man frantically pacing beneath a streetlight, periodically dropping to his knees to look between the cracks of the sidewalk.
He is desperately offering $100 to any passerby who can help him find his misplaced keys. Relieved at the sight of law enforcement, he asks for the policeman’s help and explains that he urgently needs to get home to his family. Together, they search every inch of the sidewalk, the gutter, and the road beneath the light and come up empty. Anyone they have enlisted for help similarly gives up after finding nothing beneath the streetlight.
Frustrated and disappointed, the policeman finally asks, “Well, sir, are you sure you lost them here? Is there anywhere else they could be?”
The man replies, “Well, no, I actually lost them in the park across the street, but the light is better over here.”
This tale encapsulates a concept commonly known as the streetlight effect. Its origins can be traced back to a Turkish parable from the thirteenth century, but the concept has been repeated throughout history in everything from jokes about people who lost their keys to scientific explanations of observer bias in which observers only see what they expect to see. The point is that you can spend a lot of time searching for something, but if you’re looking in the wrong places, you’ll never find it.
Unfortunately, in my early days of venture capital, nobody told me this story, so I immediately started searching for deal flow where it was easiest: in Hong Kong. I had a strong personal network and brand in the Hong Kong region, and I had no trouble finding local entrepreneurs who wanted to pitch Fresco Capital for funding. I spent my days meeting with new companies that were willing to come to my favorite coffee shop on Hollywood Road in Hong Kong, though they were not the businesses I was most excited about or thought were most likely to go on to be massively successful. Soon, I found myself with an extremely packed schedule but little excitement about any prospective investments.
At the end of every week, I would sit back and wonder where the time went. I was growing self-conscious that I had nothing to show for my packed schedule.
You can spend a lot of time searching for something, but if you’re looking in the wrong places, you’ll never find it.
Invest time in places where there is a high concentration of what you are looking for
I had been investing my time in meeting with local entrepreneurs, a strategy that wasn’t producing results. Clearly there was a light shining directly in front of me in Hong Kong, but I had a feeling my keys were across the street in a park somewhere. I knew I had to stop doing what was easy and start looking beyond Hong Kong for deal flow. Along with my business partner, I began to spend my time researching the major hubs of entrepreneurial and tech activity that had a high concentration of entrepreneurs seeking funding. I also hunted for those who had produced big outcomes in the past decade (unlike Hong Kong, which was still early in its journey as a startup ecosystem and did not have as many examples of successful venture-backed businesses). Then I hit the road.
My partner and I spent time in cities like San Francisco, Austin, and New York, as well as London, Beijing, and Singapore. I spent the better part of my first five years in venture capital on a plane (mostly in middle seats in economy, to be exact). On each trip, I was energized by the entrepreneurial buzz in each region we visited and overwhelmed by the number of promising companies we met in each place. My days were equally jam-packed, if not more so, than my time at home. However, unlike my experience in Hong Kong, each day of meetings was yielding exciting investment opportunities that I was eager to dig into. Time flew by, and I was finally producing results. I had real deal flow! I just had to get on a plane to go get it.
As a new, small fund, we were on a shoestring budget, so I crashed on friends’ couches or stayed in inexpensive Airbnbs while I was traveling. Especially when it came to navigating the San Francisco Bay Area, I could not have felt more like an outsider. Who knew that Google’s headquarters in Mountain View were at least an hour from downtown San Francisco, and that distance ballooned into several hours during rush hour, which in California started not at 5 p.m. like a person might usually expect, but instead at 3 or 4 p.m.? One trip, in hopes of cutting down on travel times, I picked the halfway point between my meetings and splurged on a budget motel in Daly City. I arrived, suitcase in hand, only to discover that the hotel was located directly across the street from a junkyard filled exclusively with old school desks, and that Daly City was affectionately referred to by locals as “Daly Shitty.”
It certainly wasn’t exactly what I had originally envisioned happening once I was on the other side of the investing table, but it was fun and energizing to be hunting for opportunities, trying to find the diamond in the rough or the next big thing. We were simultaneously in the process of raising our fund, so when we did make an investment, it was a very small amount. We were, however, investing a lot of our time in developing new sources of deal flow.