A VC's Playbook: How Time Arbitrage is an Investing Superpower

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   What if you could master one of the most powerful investment tricks that top VCs use to make money? Hi, I am Mike Collins. I’m the founder and CEO of Alumni Ventures. Today we’re going to talk a little bit about time arbitrage as an investing superpower, as well as some other aspects of psychology and behavioral economics that influence investing results. So let’s get started.

  Before we get going, I just have to give a disclosure that this is the point of view of me at Alumni Ventures. It’s not an offer to buy or sell any securities which are made pursuant to formal legal documents.

  So what we’re going to cover today, I’m going to give you three minutes on me and Alumni Ventures. We’re going to talk about long-term thinking in a short-term world, some tips and tricks to kind of help with that. We’re going to also talk a little bit about some of the other side of the coin, some of the hazards and opportunities of short-term thinking. VC is kind of both time arbiters, also people who very much rely on compounding in the use of time to create value.

  And then I’m going to talk about several other areas that I think could be potentially really helpful for you to think about that VCs have trained their minds over the years to approach, and we’ll just take it from there with some Q&A sessions as well. So welcome to the program.

  So just briefly on me, I grew up in the Midwest. First job in venture capital was at a venture firm called TA Associates in 1986. I’ve been a lifelong investor and entrepreneur. My passion is really at this intersection of technology, entrepreneurship, and venture capital. Founded Alumni Ventures in 2014 to bring smart, simple venture capital portfolios to retail investors.

  I think it’s one of the most important things in our economy—the innovation entrepreneurship part of our economy helps solve world problems, move standards of living forward, and there’s always problems to be worked on. So it’s An exciting space.

   I think what we offer our customers—again, we’re focused as a retail venture capital firm where we give people diversified portfolios for as low as $10,000 with 20 or 30 companies all led by name brand venture capital firms—is quite remarkable. Because of that, we’re approaching $1.5 billion of money. We’ve raised 11,000 customers. We’ve made investments in something like 1,500 companies over the decade, and we’re almost always ranked by PitchBook as one of the more active venture capital firms in the world. We have employees in all the major venture hubs, about roughly split between investment professionals and back office.

  We’ve been recognized—again, I think we are thought of as one of the leading co-investor venture capital firms. We have a large community, which is our secret sauce, which helps get access to the very best deals and to disproportionately help our portfolio companies. It’s the power of the network and the Rolodex for sure, but we’re very proud of what we’ve built in our first decade. It all comes down to the great companies you get to invest in.

  I encourage people to check out 50 of our portfolio companies that we put together annually in our Apex 50. It gives you a sense of some of the great teams that we’ve been able to back.

  And part of the strategy is we are a co-investor. So regardless of who’s leading the round, we like to do a small percentage of the round of financing. So these are the groups that we do a lot of deals with. Just to give you a sense, these are—I think most people are familiar with the names—but if not, these are some of the leading venture capital firms in the world.

  Okay, so let’s talk about time arbitrage and long-term thinking in a dopamine, short-term, quarterly-report world. So one of the great things about venture capital is by structure, it is a long-term asset class. So the holding period for U.S. public stocks continues to go down. The dopamine-centric economy we are in, the news orientation about the drama of the day (of which you can always find some), leads people to do a lot of trading. And the people who really do well in trading are the people who are taking a toll every time you make a decision.

  So if you go back 50 years, people were holding stocks five or 10 years. Now they’re holding them five or 10 months.

  There is huge advantage to compounding and long hold periods. Venture capital is a business where by definition you’re backing a team and you’re along for a ride that takes years. A typical venture capital investment will be somewhere in the four- to seven-year time horizon and sometimes even longer with your best investments, where you’re continuing to compound and you’re doubling. When you double a 20x to a 40x or a 40x to an 80x, it is very worth hanging on for longer periods of time.

  So while people are freaking out from whatever the news of the day is, venture capital and the entrepreneurs that we back get up every day and just try to build their business. So I think there’s great benefits for that, and I think a lot of people can relate to what happens with their retirement accounts, which they tend to index and they tend to leave alone—tend to do a lot better than things where they’re timing and trading, which for most people is really Kind of a losing game.

   You can take my word for it or you can take the word of somebody like Warren Buffett, where one of Warren’s great attributes is really either through understanding or insight or study—understanding human psychology and impatience. And trading is not how he’s wired.

  So this quote I think is a really good one, which is the stock market basically being a way to transfer money from the impatient to the patient.

  So again, you look to the fundamentals and first principles, which in venture capital or investing is good fundamentals, great teams, large market opportunities, good business models, huge moats—and then just let it go. And to watch the pot boil is a huge mistake. And I think over time people intellectually recognize that. I think psychologically in the heat of the moment, it is Very hard.
  Everybody’s pretty familiar with the marshmallow test and then subsequent follow-ups to the marshmallow test. So you can take or leave that particular example, but I think all of the listeners out there—we deal with a sophisticated crowd—understand that our brains are wired through evolution to really be very short-term oriented.

  If you get eaten by the tiger or eat poisonous food, there’s no long-term to worry about. So our brains are really wired to be wired toward instant gratification. We are kind of dopamine-driven beasts.

  What can one do? One needs to create systems that counteract that if one is going to be successful. So the tricks are long and varied, but not having your stocks on your iPhone perhaps might be a good trick—to invest in a portfolio of assets that really are locked up, such as your home or real estate investments. Be in a landlord role where you sign one-year leases, be in illiquid assets or in assets where there’s a huge penalty, like 401(k)s or venture capital.

  One of the reasons these asset classes do well is it keeps you from making bad decisions on your own. So we live in this space, but this is again something that we all need to remind ourselves about. This is something that I think is really important to educate our family, our kids about—just understanding compounding.

  And in essence, if you can be more patient and have more time arbitrage and have a longer investment horizon, you do better.

  I think it’s one of the arguments that we’re also seeing for companies staying private longer, where you’re not dealing with an investment cycle that may be three to five years where the market requires you and overreacts on a quarterly basis. So companies going private, companies staying private longer—I think—is a reflection of it.

  I’ve always wondered what it would be like if public companies only gave updates once a year—would everyone be better off?

  So anyway, those are a bit of the science. I think we all understand that this isn’t just character; this is wiring.

  I talked a little bit about the dopamine economy. I think we walk around with our phones, which are basically dopamine delivery mechanisms, if one wants to be cynical. I think all of us that deal with different generations understand attention spans are shrinking, that everybody is chasing the moments.

  And again, I’m sounding like a “get off my lawn” old man here, but I play where the ball lies, and I just think that this is the world we’re in—that our wiring is very short-term oriented. The amount of people that have attention spans to sit down and do hard work for two to four hours is increasingly rare.

  And so the trends—the tidal wave—is toward the short term.

  Now, the investment opportunity, which is the nail of which I always am thinking about hammering, is that the more this exists, the more there is value to people who can fight against it, can invest against it, can think with a longer time horizon.

  And so one of the reasons I have just observed over 30 years that venture capital works is kind of forced patience. So it forces one to kind of get outside the dopamine-driven cycle and to focus on value creation.

  Another quote from Warren is: in the short term, markets can be measuring machines, but in the long term, companies are really weighing machines.

  So I think one needs to think about inherent value follows over time despite huge variations on a day-to-day basis because of our dopamine-driven economy.

  So again, I don’t need to oversell the news of the day. Again, depending on when you’re watching this, whether it’s with our scheduled programming or you view it on our website at a later date, there’s always something in the news. And short-term thinking really creates buying opportunities. I think the market reacts on the upside and the downside in emotional ways. So just recognizing the cognitive inefficiencies that really create opportunities to buy right, to get access to deals when things are out of favor. And smart investors exploit this really by relying on processes and first principles. So again, easier said than done, but there is incredible money to be made in public stocks, for example, with just buying indexes on a regular basis and then just not watching them and then waking up 10, 15 years later and seeing the remarkable returns that can be done.

  Same thing is true with venture capital. If one has a large, diversified, high-quality portfolio, you recognize that at the end of 10 years that you’ve done very well. So those are just things everyone knows but probably need to be underscored in the times when there’s always volatility.

  So I talked a little bit about this, which is venture capital is really structured—because these are startup companies—there’s a long incubation period. Typically, this is a five- or ten-year bet. Even the great companies, the Amazons, the Ubers of the world, these companies take a decade or more to mature. They have ups and downs. A lot of the companies like Amazon, Tesla, Uber—they all have had near-death experiences along the way. So this is just the power of time, the power of patience, the power of maturity.

  So one of the other characteristics of venture capital is you really—and you often do—lose your money, but you only really lose one times your investment. Whereas if things really increase in value, you can be really looking at opportunities that make 10, 20, 50 times your money if they really work out. But that compounding takes time and patience, but you’re kind of along for the ride. There’s potentially some opportunities to take some chips off the table along the way, and that’s often a good investment decision—to book some wins as you go because you never know in this business. But the forced patience is one of the reasons that venture capital is structurally good.

  Here’s just one Example that has happened for us just recently, which is—this is a quantum computing company called D-Wave Computing. This company SPACed several years ago and was really in the doldrums as a public company for years. We were big long-term believers in quantum computing. We have a myriad of investments in the space, but we recognized that this is at the very early stages of the industry. The fact that this company SPACed, which was not our decision, we just viewed as a financing play—not really. So we were treating it as we’re only a few years into what we thought was a five- or ten-year hold period.

  And then there were some significant breakthroughs, both with some success at the company, with some financing, some breakthroughs from a technology perspective, and the stock went from cents to $15 or $20 in the matter of three months. So this is just a somewhat unusual example of where, if you really believe in the technology and the team and the strategy—even if it becomes a public company—it’s often the right thing to do, especially in areas like deep tech or biotechnology, where you don’t really view it as the exit. You just view it as a financing around a financing, and you’re really looking at other things that go into the condition of the company to decide when you want to take some chips off the table or exit.

  There’s another thing I really want to touch upon here in time arbitrage, which is: venture capital is a game of a power law, where a lot of things that look crazy at the beginning in hindsight look obvious. So I think one of the things one always has to understand is that there is a huge kind of reversion bias as well that goes on, which is—you’re going to miss out on a lot of deals. But again, it’s the winners that pay for the losers that is so important to the business, and that we’re in the business of high risk, high return.

  So one of the reasons portfolio size is so important is: there’s a million ways to fail, but when you hit it right, you can be hugely rewarded in a way that is just unusual, uncommon, and a real difference. So in the beginning days of Airbnb, I think a lot of people have heard the story of some of the crazy things the team did just to pay the rent in the early days, but was rejected time and time again—as were most great investments—and then eventually becomes worth not only a unicorn, but oftentimes a thousand times those kinds of things.

  So successful investing requires real humility. Things that you’re sure are going to be great investments don’t make it. They’re too early. The team screws it up. Competition changes. Technology changes. And then there’s sometimes where it’s like something you started pivots and it turns out to be an amazing home run. So it’s an industry where you get rich slow, and there’s constant—it’s a little like baseball—constant humility around every corner.

  This is another story about patience. This is a company that was one of the very first investments, where Nan and his team were just a handful of people with an idea about this thing in 2013 called fantasy football and creating a community that really emphasized the social-driven parts of fantasy sports, before the world is what it is a decade later. But this company—we got in kind of the pre-seed round, and now they’re one of the leading fantasy football networks in the world.

  After us came in Andreessen Horowitz, General Catalyst came in. Their user base has grown multiple hundred percent since we first invested. But we’ve been involved with this company nine years now. So this is a company that we are excited to still be an owner in, and it took time, and it’s a lot of compounding—but our value has grown in compounding fashion as well.

  So just wanted to bring a few real-life examples to the case. So again, I think venture capitalists think about the world a little differently. I think there are really strong lessons for a lot of people in life. Here are just a few that I jotted down:

  • Really work hard to stretch your investing time horizon.

  • Do the things necessary to tune out noise and focus on fundamentals.

  • It’s okay to think differently and to be contrarian—that’s where you disproportionately get returns.

  • Be self-aware. Know what kind of personality you have: Are you conservative and maybe need to be pushed to take more risks? Or are you kind of inherently a gambler and need to diversify more and put things away so you don’t look at them and overreact?

  So self-awareness—very important.

  Manage your behavioral biases. I’m a strong believer in reading Danny Kahneman and all the behavioral economics. So at least be aware: don’t hype buy, don’t panic sell, dollar-cost in, dollar-cost out. Think in probabilities, not certainties.

  There was an old story about a venture capitalist I was traveling with, and we were getting off an airplane. We were looking at private jets, and he commented to me, “See those folks over there? Those are all people who sold early.” So I think that’s an interesting observation. It never hurts to take a few chips off the table as you move along.

  Final takeaway: the investor who waits, wins. This is really the venture capital famous J-curve, which is—if you have a 10- to 15-year horizon (again, another little chestnut is your lemons ripen early, right?), so usually if you invest in 20 companies, half of them are going to go away. Most of those will go away in the first half of the curve. The winners—the two or three winners that make up the success of the portfolio—take longer. It’s probably not as straight a line as this, but the patience is rewarded.

  So think long-term. Set up systems that help you do that. Again, I think certain asset classes are especially conducive to this. Diversification is your Kevlar vest for creating value and sleeping at night. So diversify. Illiquid. Long-term. Those are Winning formulas. So a few just related Thoughts kind of in this area of behavioral economics that I think impacts investing:
  Loss aversion—so again, this idea that we’re much more sensitive to losses than gains. We give up a chance at a 5x return because we’re afraid that we might lose 30% of our investment. So one of the things VCs do is understand portfolio, accept risk, and aim for outliers.

  
  Be careful of loss aversion.

  
  Thinking differently. So greatness comes by having a point of view that is maybe different than the herd. So it needs to rest not with weirdness but in first principles. So the people with the foresight to invest in blockchain early, the people that invested in AI early—alternative energy space is that today, right? Where a lot of people are like, “Oh, that’s wacky. That’ll never make money.” They said that about the internet.

  So if that’s not in your sweet spot to see, to understand, to feel comfortable with—that’s when you need to find partners that will help you with an appropriate allocation to that part of the risk curve. Yeah, again, the adage of “Be nervous when many are greedy, and be greedy when everybody’s fearful” holds true. Do your own work. Following the crowd is not the way to do well.

  
  Think differently. Power law—again, a great rule of venture capital that probably applies to life, which is just understanding that certain things in the world are about the power law or a hits business, where it’s like—in the world even of well-thought-out venture capital—the majority of companies fail, but the winners pay for the losers.

  But it’s really important, I think, to do a couple of things within our asset class, which is to be sure that you plan to invest on a regular basis so you don’t try to time the market. There are good vintages and bad vintages of venture capital. You don’t really know which those are in the moment, and thinking you do is hubris. So it’s just like, “Okay, I’ve got a hundred thousand dollars to invest in this asset class. I’m going to invest $20,000 every year for five years, try to build up a large portfolio, try to invest with high-quality firms and people.”

  The very best companies aggregate to the best investors. That’s a correlation—not causation. So the best entrepreneurs have their choice of capital sources, so they end up with a certain subset of firms. So you want to, if you possibly can, invest with those people, invest regularly, and build a portfolio. The data shows somewhere between 100 and 200 companies is where you really want to be.

  But there’s other things in life where focusing on your winners, not your losers, puts you in a good position—even though our brains are wired differently.

  
  And one more thing—this is where I sell my book. We want to be your venture partner if you’re looking to do better in this asset class. We deal with a variety of investor types. Some people work with us because they love the technology, and they want to understand it, and they want to learn, and it’s fun.

  We have people that are very new to venture capital that really just want to learn how this works—dip their toe in the water with a diversified portfolio. We have people that have done really, really well in life financially and now are at the point where they’re looking to give back and have impact.

  We have people who—this is the part of their portfolio where they want to really swing for the fences, and they want to invest where there’s the potential for 25x, 100x, or more returns. And then we have the Warren Buffett asset allocators that just view the private markets in 2025 as a place that they need to be with an appropriate allocation.

  So all are welcome, and we’d love to talk to you about who you are, what you’re trying to achieve, and how we could maybe help you achieve Those things. So we’ll just take a few questions From the people attending today. And you mentioned working with various VC firms as co-investors. How do you view how they approach time horizons? Are some better at time arbitrage than others?

  So the great VCs all are patient investors. Not every VC is experienced. Sometimes this is a lesson that has to be—excuse me—or this is a lesson that sometimes has to be learned the hard way.

  So I look for people that have done it. We like to co-invest with partners that have domain expertise but also experience in the asset class. So I really view it as a common denominator among great investors—really having patience.

  I think if you look at just stage of investing, people who do a lot more really early-stage investing at pre-seed and seed obviously are more wired for more patience than late-stage VCs, which are typically looking at the shorter end of the horizon and really looking to flip an investment in kind of a few years.

  Those are the major differences. Name recognition, brand—it comes with performance. And performance comes with patience.

  So next question: Given the psychological biases like loss aversion and dopamine seeking are so ingrained, what specific frameworks or disciplines do you think counteract those tendencies?

  I’ll answer it this way—what are the kinds of people that we look to hire as venture capitalists? We look for people that have something in their life where they’ve had to grind it out. So we really look for people that have built something that took a long time to build.

  They’ve been athletes who have learned about training and going to practice every day and incremental improvements. We like people that have slow hobbies. So you’re looking for people that are doing things that require patience, long-term perspective, stepping back from the situation.

  All of those things, I think, are attributes that one wants to cultivate. And then just individually, my advice to people again would be: ignore the day-to-day chatter. Focus on your life. Focus on your work. Focus on building things. Focus on first principles. And just tune out the noise of the day.

  There’s a line there. One has to understand what’s going on in the world—context, trends, those kinds of things. So you can’t move to North Alaska and be a great venture investor. But there’s a line there that again, in today’s world especially, I think you want to mostly tune out stuff.

  Okay, I think we’ll wrap up. We’ve been at it a good amount of time. Again, our encouragement is that if this is something that you want to talk more about, we have people we love to hop on the phone with. We make it really easy to talk to us about your portfolio, how venture capital might fit into it.

  We do a lot of content like this, so we encourage you to continue to look for things that might be of interest to you. Hopefully you got a few nuggets out of today, and thanks.