While feeling all the uncertainty and sadness that’s coming from the elections results all around the world, I’ve been wondering just how much I’m impacted by it all.
I think that politics is an important aspect of our life and that people that go out there to truly serve their communities are heroes, but for some types of people this path just isn’t interesting.
It’s just like working in a big corporation.
Why in the world would you go to work for a huge company, owned by no one, where you have zero influence over it and which has all the influence over you?
But many people do, and many people like it. And many people like being in politics and only being able to change one thing every decade.
But that’s not good enough for the kind of people I’m thinking about.
Entrepreneurs don’t like it when a random majority of people decides for their future.
We like to take control of our own destiny. Make our own mistakes. And then learn, fast, to not make them again.
This, I think, is the reason why entrepreneurs feel this weird feeling of sadness even if they don’t really like or care about politics.
They don’t like the thought of not being in control, and having other people decide for them.
Well, luckily we can take control of most aspects of our life:
We can decide where we live, with whom we spend time with, where we work, on what and with whom.
We can decide how our mental cycles are spent, what we want to learn about, and how to use that knowledge.
We’re in control of what we buy and who we buy it from.
We’re in control of our financial life, of our emotions and ultimately of our future.
So, don’t think about politics — leave that to people who enjoy it — and take control of what you have the power to change. It’s more than you think.
Today I turn 30. I’m not really sure why, but having revolved 30 times around the sun seems to be somewhat of a milestone. I’ll still take the opportunity to reflect on life so far, and what I want it to be in the future.
Sam Altman shared some really good stuff when he did, and I don’t plan on competing. I also don’t plan on releasing 1200+ slides like Ryan Allis did, even tho you should really check them out.
At 30 I find myself very happy in a period of total uncertainty, and wonder how I got here. My life certainly didn’t go according to plan till today, but I must admit I’ve had an unfairly easy time for now.
What I’m happy about is that I don’t have any regrets whatsoever. I’ve always taken decisions very fast and mostly based on gut feeling, and I think this is how I’ll continue to take them in the future.
From not pursuing a Masters degree, moving to SF, getting married, having a kid, moving to the mountains.. if you don’t take the decision, it will not happen. And if you wait for the perfect time or reason, it will never happen.
I found that inertia has to be actively fought, but that life gives you the right clues which are very evident. You just have to act on them.
The regret minimization framework
During these last years, I’ve questioned more and more what I do to make sure that it actually aligns with what I want to be doing and what impact I want to have on the world. I think this shows in the portfolio of Mission and Market, and in the motivations that led me to start Kickpay.
What I’ve found most useful to make these and other decisions is the very simple and probably obvious “regret minimization framework”, illustrated by Jeff Bezos when he explained how he decided to found Amazon.
Up to today, this has made it very easy to answer a lot of questions.
Would I regret marrying my wife so young? Hells no.
Would I regret having kids at a young age? Nope.
Would I regret burning my life working and not spending time with my amazing wife and family? Most definitely.
Would I regret trying to move to the mountains and live more in harmony with nature, even if it would mean saying no to a lot of cool business and work proposals? Definitely not.
And so now I’m once again left with the question: what would I regret (not) doing when I’m old?
What I’m starting to think more and more is that I would regret a lot not being more active in helping protect the planet from our own uncontrolled growth and consequent devastation.
Leaving a worse planet to my kids than the one I found seems to be too much of a burden to have when you’re old.
As much as I think government will be the #1 driver of change in this matter, I do believe that startups have a lot to say and do about it.
So given that this is all that I’ve been doing for the past years, I think that I’ll have to be more involved in finding, helping, investing in, founding, startups that have a clear goal to preserve our natural resources.
Fortunately this is getting easier by the day with amazing technological innovations happening all around us from nano materials to biotech, AI, financial technology, logistics, and more.
What I’ve found is that investing in companies like Aspiration, Clara Foods, Vitro Labs, has made me more proud than anything else I’ve done and thus think that this could be a clear indication of the path to take.
We’ll see where it leads.
Bonus: some random thoughts on different aspects (some of these are more reminders for myself, but maybe they can be helpful for others.):
On relationships:
Marry the smartest woman you can find. The advantages are so many more than the disadvantages.
Marry someone that is not like you but that likes the same things you do, and more importantly values the same values that you hold.
Nurture your relationship every day, it’s so easy to give it for granted and let it all slip until it eventually breaks. And you do not want that.
You only have two parents. Spend time with them and care for them. You’ll soon be in their position.
On money:
The best way to make more than you spend, is to spend little money in the first place.
The saying that money doesn’t buy happiness is a myth. Unfortunately our world still revolves around sovereign debt money, and to pay for what makes you happy you will need to have sovereign currency.
This is very different from saying that materialism produces happiness, quite the contrary — but in my opinion you need more than your basic needs to be happy.
My experience has been that happiness comes from:
1) loving other people and being able to provide for them (money enables this).
2) Having the freedom to live wherever you want and freedom to do whatever work you want (this is also usually enabled by financial security. Ingenuity is a part of it but without money it has too much risk for most people)
3) Experiences: travel, sport, food with friends, etc. (all of which are enabled by money).
In short, money (not a stupid amount of it, but enough) buys happiness for me, but the line is short. Having said that, it’s better to not have much money rather than being miserable trying to make a lot of it.
I think it would be perfect if you could have kids 3 weeks out of 4, but unfortunately it doesn’t work like that.
Your life will change completely, I welcomed the change because 100% of having kids is easily better than 100% of not having kids. But it’s complicated.
If you enjoyed this story, we recommend reading our latest tech stories and trending tech stories. Until next time, don’t take the realities of the world for granted!
A look at who’s innovating the business of funding innovation
Every new VC firm that launches touts to be a “new breed of venture capital firm”, but the reality is that most of the time it’s just a straight up old-school VC model.
That being said, VC has seen some massive innovation in the past decade: the rise of the super angels, the subsequent explosion of seed funds, VC blogging, AngelList — today the fundraising environment is certainly different for founders.
As I’m thinking through how to approach investing in Europe (I’ve just moved back here), I started to recall and research the most innovative VC firms and models that I’ve seen in the past years.
Here you can find a list of firms that I think brought the most innovation to the VC landscape in recent times. I’m sure that I’m missing a bunch more, so feel free to tweet me some more and I’ll add them.
Disclaimer: My small investment firm, Mission and Market, is an investor in a number of companies that received prior or further financing by many of the VC firms mentioned in this piece. I try to mention those in the details, but I’m surely biased even only for my knowledge of these firms’ existence.
I know the recommend button is all the way down, but if you think this is interesting, I’d appreciate a click 🙂
Correlation Ventures was the first fund to be marketed with the data angle.
I think their strategy is pretty smart, and surely new: they aim to be the dream co-investor for teams looking to fill out a round.
They use analytics and get to a decision in less than two weeks, which is impressive — as their portfolio is, given they’ve made more than 160 investments.
They’re investing out of their second $188M fund (the first was $166M).
AngelList has completely changed the early stage investing world, plain and simple.
From intros, to profiles (I use AngelList more than LinkedIn nowadays) and now syndicates it continues to innovate like no other in the venture space.
In particular, Syndicates are the stuff of the future. I’ve been investing in Syndicates sporadically but I’m just stunned at the quality of the stuff I get to see. It’s certainly not perfect at all at the moment, but if you want to innovate this is the price to pay — and I’m sure it will become so in the future.
On top of this, Naval is truly an extraordinary brain and person. Everyone who had the chance to interact with him knows how sharp and kind he is. He’s always been very generous of his time with me.
One of their most recent efforts which had everyone pretty stunned was the announcement of a syndicates-only fund.
This is pretty bold. It’s basically saying that the concept of “proprietary” deal flow is outdated and that by using AngelList anyone can create a well-performing venture fund. The implications of this are hard to fathom, but if you take a look at their portfolio I’m sure you’ll be impressed.
Gil Pencina is one of the best angels around, having invested in every single major tech company — and he’s also one of the first to have spotted that Syndicates are probably the future of early-stage investing. I deeply respect him for this.
Gil wants Flight.vc to become the Fidelity of startup investing. You choose the vertical, theme or location and Gil will have a syndicate for you to back.
He recruits managers for each syndicate, which do all the work and then he helps them by reviewing the deals and, most importantly maybe, getting the money to flow.
I’m now also an investor in one of his new funds (devoted to deep learning in this case), which are evolving the model even further.
I had the pleasure of meeting Chris in 2013, just after he left General Catalyst and was impressed with his very ambitious vision.
Chris rightly observed that for an industry that is constantly immersed in software, it has used very little of it to innovate. So he set out to create a firm that uses a lot of software to spot investment opportunities as well as help out its companies.
Its software tracks talent and can be used to spot people that are about to start companies as well as help its portfolio companies hire top talent, which is often the #1 problem for companies that need to grow fast.
Signalfire also has a distributed model where top people in Silicon Valley actively help the portfolio companies, and in exchange get access to the software (and I guess better economics on the fund as LPs).
They raised a first $53M fund and should be just about done raising its second $300–350M fund.
DKV is another pretty futuristic firm that touts its use of data as a competitive advantage. They use a software created by a 3rd-party company called VITAL to spot investment opportunities (mainly in the life sciences sector) — they even named the algorithm to the board in a PR move.
They have launched a specific Life Science fund and are about to launch a new Digital Capital fund focused on BTC, blockchain, AI, data, etc.
Tusk recently participated in the A and B rounds of one of our portfolio companies, and I couldn’t be happier.
They’ve developed a brand in Silicon Valley for helping companies navigate hard and uncertain regulatory terrain, which in this case were the #1 risk for the company — having a dedicated team for that makes you a bit more comfortable.
Tusk Ventures gets some serious equity for their work (they also now have a fund, and I don’t know if they invested cash or services) which is oftentimes very lucrative for them, given their first client was Uber.
There have been a lot of work-for-equity schemes around obviously, but I specifically like this one because it is a very scarce skill-set that can actually command equity from top startups (vs say a design firm, of which there are a ton and for which top startups would just pay cash).
These guys are sharp. I’ve found them randomly only but I’m impressed with their model.
Redstone basically offers a “VC-as-a-Service” model to big corporates or other type of LPs.
So, instead of saying: “give me your money and we’ll see in 10 years how good we were at managing it” they’re going to these huge institutions and telling them “hey, why don’t you build your own corporate venture fund? we’ll do it for you, but it’ll still be yours”.
That’s a massive value proposition to companies that want to dip their toes in the corporate VC world, but have no idea where to get started and also want to be in control of what they invest.
In this way, Redstone is able to build a massive AUM base for which I imagine they get both fees and carry in a shorter amount of time — while having access to the corporates firepower.
Some conflicts of interest for sure, but if managed correctly this could be a very solid business
Kima is a hybrid French / Israeli firm, which in its short existence (6 years) has invested in more than 400 companies.
They do so by moving extremely fast and making investments as often as 2–3 times per week. They invest globally which helps widen the funnel.
The team is distributed and I had the chance to recently meet with Vincent, their partner in London.
On top of being extremely entrepreneur friendly in their speed, they have also built a first in the VC world, a status tracker for their evaluation of a deal: https://status.kimaventures.com/
Dave McClure certainly needs no introduction as well, but his work with 500 can’t be looked over.
Dave has pioneered the high-frequency “index” model of startup investing, with the belief that investors can’t really pick the winner so the best way to invest is to just invest in a whole lot of companies and then follow-on on the best ones.
This approach has made him quite a few enemies in the valley, and didn’t give him a very easy time while in LPs boardrooms (maybe paired with his unorthodox clothing, language and methods) — but I think the numbers will show his acumen in the long run.
I’ve had the chance to shadow Dave for a few weeks back in 2011, and have been extremely impressed by his vision and ambition.
In the time that passed, he has been launching vertical-local funds all over the world given his other thesis that the next big unicorns will be founded all around the world — and he’ll be there first to get a shot at all of them.
YC has probably had the most impact on the venture scene in the last decade than anything else.
I’ve been fortunate to participate in a YC batch with my company to see what the hype is all about.
Jessica and Paul are true visionaries, and with the ambition of Sam YC is not really stopping for a moment.
It’s crazy to think that when they first launched, there was no early stage acceleration program for startups — with the millions that exist today — but it was really thanks to them that all of this movement was born and that so many people now are even aware of entrepreneurship as an avenue for their future.
I’ve gotten to know the guys at SOSV through their Indie.bio program which is run in SF by Ryan and have been extremely impressed with their approach.
They create a number of vertical accelerators and exclusively fund all operations and investments, plus they have a core fund that follows on on the best graduates.
This gets all of the benefits of the vertical approach (high value add, good screening capacity, great deal flow), with the diversification of different verticals.
We’ve invested in two of their companies and are looking forward to finding even more.
They tout $250M AUM, 500 startups and a solid 30% net IRR.
I can’t recall the amount of times that, while chatting with people about what to do next, I got suggested to look at Entrepreneur First as one of the coolest new models around.
EF is a pre-idea entrepreneurship program. They take the brightest young minds from the top universities in the UK (and abroad) and help them meet other people and launch a startup.
I’ve always seen two major risks to this approach: 1) inexperienced just-out-of-school people, which can be great for social software, but probably a bit less so for hard-tech B2B companies and 2) co-founder mismatches and problems, given you’re literally meeting your co-founder for the first time at the program.
But they seem to have solved for both risks: on top of recent graduates, they are now targeting people coming from Tier 1 companies, and they say they have developed a great program to match people.
The results have certainly been brilliant, given Twitter has bought up one of their companies for $150M, and the others are not doing to bad either.
Indie.vc is the grand experiment in alternative funding model for startups by Bryce Roberts, a partner at OATV.
He’s questioning the assumption that startups need only to focus on hyper-growth and not on just creating a sustainable, profitable business. Thus, indie.vc has a model where it will get paid back by dividends from the company, specifically it will get 80% until it gets paid 2x and then 20% until it reaches a hard cap of 5x its investment.
Meanwhile, should the company decide to actually go for hyper-growth and raise additional funds, its investment will just turn to equity at a pre-negotiated conversion price.
My view here is that this is an awesome and very much needed experiment. Indie.vc thus will have a portfolio of a few companies that will raise more money where it will get equity and have a potential 5x return from the ones that don’t. Given this approach would tend to find companies that are inherently less risky, it might yield a pretty interesting return.
They’re now on their v2, raised a specific fund and make $100k-500k investments.
Lighter Capital is not really a VC fund per se, but actually a VC-funded startup. They raised $17M for their operations, and invest out of a $120M LP pool.
Lighter provides revenue-based financing to SaaS businesses. That means that you get a check for say $100k, and have to pay them back a multiple of that amount, and such payments come out of your revenues — the more you grow, the more you pay.
They write checks of up to ⅓ of a company’s annualized revenues and don’t get any equity.
This is an extremely smart model, which drives probably around 30% annual returns with much lower risk than what VCs have.
Lighter Capital is able to use a lot of data and metrics to project revenues and is completely uninterested in the final outcome of the company, they are just very aligned in the short term to help it grow fast (so that they get paid back earlier, and thus generate better IRR).
A solid solution for people who don’t really want to give away equity but have a solid business and could use a boost.
I had the pleasure of meeting Paul and Duncan from Bullpen after they invested in a company I worked at — and remember being instantly impressed with them.
They were the firsts to aggressively go after a clear opportunity in the VC market: the famous “Series A” crunch.
Bullpen figured out that with the massive explosion of seed funds (themselves pretty innovative at the time), and the shrinking of the later stage VCs post-bubble, there was now a massive opportunity to find underpriced post-seed deals.
They have been thus able to invest in companies that needed just a bit more time before raising their Series A, but whose seed-round VCs wouldn’t bridge. This means getting companies that are fairly de-risked but still very cheap.
It looks like it’s going well for them as they’re already on to their third $75M fund (the previous ones were $24M and $31M).
If you know Matt, you already know he’s the man. Add Zack to the mix and you get one of the best new firms around.
DCVC’s innovation stems surely for its approach to backing extremely deep tech, but also from employing a “collective” approach of giving experts (LPs and not) meaningful carry in exchange for their help vetting and helping its portfolio companies.
These are solid people, and include DCVC’s equity partners include Jawbone’s VP of Data Monica Rogati, Facebook’s and now Google’s head of analytics Ken Rudin and Factual founder Gil Elbaz.
What I particularly like about DCVC is that they get all the marketing and operational advantages of having a “vertical” fund (focused on data advantages), and are able to still be extremely broad in the target markets.
They are now investing their fourth core fund, of $177M, with previous funds having been $140 Fund III, $75–100M Fund II and $6m Fund I.
They also have two $125M opportunity funds.
We are investors in 3 deals where Matt and Zack invested, and have also been honored to receive a small check from DCVC in my company’s seed round so I might be biased, but think there are few funds of this quality around.
Kent Goldman was exposed to innovation in VC early on, being a principal and then a partner at First Round Capital — one of the great early innovators of the seed model (almost 12 years ago!).
When he left and decided to start a new firm, he took a spin on the model and made every single entrepreneur he invests a carry holder.
That should ideally foster a deeper sense of community and shared goals between all of the portfolio founders.
The percentage of carry reserved to founders is probably around 20–40%. The first fund is a $35M vehicle.
Many firms have entrepreneur or exchange funds, but I think this is the first of its kind.
I don’t know Kent, but we’re co-investors in a deal that I like a lot, so I hope he does really well 😀
Brad Feld obviously needs no introductions and his leadership in the changing tides of VCs, with the new breed of “blogging VCs”, has been impressive to watch.
Recently Foundry Group raised a “Next” vehicle which enables Foundry to invest in later stages rounds of its own portfolio companies (like a traditional opportunity fund), invest in other VC firms (like a fund of funds) and invest in later stages deals coming out of these other firms and the broader network.
Very cool stuff. Brad clearly has seen the benefits of his huge efforts of helping other people and institutionalizing his efforts by raising a hybrid fund such as this one are a really cool and creative move.
Rising from a brand-new firm to the top 3 in the world in half a decade is just unheard of, and yet this is exactly what A16Z did.
Aside from the brilliance and power of Marc Andreessen and Ben Horowitz, which would probably have made them Tier-1 VCs anyways, what was most impressive to see was their rethinking of the VC model.
When you visit the A16Z offices, it doesn’t feel at all like you’re in a VC firm (even if they kept the old tradition of being on Sand Hill Road..). Their goal is to model the firm after a creative agency, and employing more than 100 people it seems like they’re commit to it.
One of the most ambitious and revolutionary projects in recent memory, the DAO raised more than $100M in Ethereum to build a decentralized venture fund.
It then famously collapsed under a hack which found some loopholes in the code, but it still made a lot of people think about the possibilities that blockchain technology introduces in the venture capital space.
I wanted to include Cota, a not-so-well-known SF-based VC fund, because of their smart approach to long-term investing and structuring.
Cota is the “union” of the efforts from Ullas Naik (Streamlined Ventures) and Bobby Yazdani (Signatures Capital).
I got to know them as they invested in my company and learned that they decided to structure their vehicle as a hedge fund (as evidenced by their SEC Form D).
This enables them to have a longer term horizon, and be a great alternative for LPs who like to have more flexibility with their capital and can’t commit for a long period of time.
One of the many vehicles tied to Tim Draper, Esprit (which was formerly called DFJ Esprit) is innovative in the fact that it actually IPOed on the London stock exchange.
This allows the firm to not be bound by the traditional 10 years fund lifecycle and supposedly have a longer horizon for its investments, consequently enabling them to make bolder bets.
It’s certainly an interesting model, with a bunch of pros and cons, and I’m really curious to see how it goes for them.
137 is focused on investing in late stage companies by acquiring employee’s shares or lending against them. This is super smart as they get access to some extremely proven companies, at lower-than-market valuation, and can do so at any time, with small check sizes.
They raised three funds ($137M, $137M and $200M) and even poached the great Elizabeth Weil, that I had the pleasure of meeting while at A16Z.
FundersClub is an online VC, as in they’re using network effects to run a centralized yet community-driven VC firm.
So, differently than AngelList, they actually have a FC portfolio. They don’t fund direct competitors, but pick one team to back per market opportunity, and then try to actively add value.
They’re also doing some interesting stuff with funds and partnerships.
Unshackled is a super smart arbitrage play. They market towards all the people that are stuck with US work visas or want to get to the US.
In exchange for equity, Unshackled not only provides cash but also acts as an employer and visa sponsor for founders. That’s gotta be genius.
Unshackled raised some $5 million from some 80 A-listers like Laurene Powell Jobs, Jerry Yang and Bloomberg’s venture arm. A larger financing round is said to be in the works.
The studio model has fascinated me for quite a while, and I even compiled a long list of them (which I’ve since stopped maintaining because every week there seems to be a new one).
It surely isn’t a new model (IdeaLab has been doing this forever), but more and more hybrid examples are launching and I think it’s worth to keep track of it.
If you’re able to make it work (it’s really hard), the economics can be absolutely amazing, as you end up owning a significant part of the company.
One of the newest interesting hybrids is Expa, which couples it studio activity with its venture investing and also acceleration program. Going full circle.
Again, not a specific fund here as much as the concept of a fund that focuses deeply on one vertical. We’ve seen with Data Collective that this can be done on a very broad horizontal theme, but oftentimes it can make solid sense to do it in a vertical market.
Obviously, the market needs to be absolutely gigantic, otherwise it becomes really hard, but given the right market the pros can fast outweigh the negatives.
In this regard, I think the performance of Rock Health (which started as an incubator) can be a very good example of the possibilities.
Sequoia clearly doesn’t need to differentiate in order to get fresh LP cash, as it can raise however much it wants.
But it surely still needs to make sure it’s always relevant and on top of what is happening in new areas.
The scout initiative was a really well played move, that’s been used by countless other VCs with varying degrees of success as we speak.
I hope that this list can be inspiring to current and future managers that want to bring some innovation to the VC landscape. If you’re exploring alternative and innovative models, I’d love to chat. You can find me on twitter here or via email.
A day doesn’t go by where I don’t hear people saying that the fundraising process for startups is too cumbersome, hard to navigate for new entrants and inefficient.
I’ve raised $3.7M for my own company from top investors and invested in more than 40 companies by now, and I’ve come to form an opposing view: fundraising is supposed to be hard, and anything that makes it much easier introduces more risk in the ecosystem.
Having run a startup for a while, what I came to realize is that fundraising is actually the easiest part of running a company.
Hiring the best in class leaders, selling a half-backed solution, making a great product, navigating uncertainty, getting distribution and all of the other million tasks in the daily life of a startup founder, are all way harder than fundraising.
Additionally, most of those things have never been done or learned before by a startup founder, whose top quality should be learning fast while on the move.
Getting a warm intro, understanding how VC funds and partnerships work, what the process is like and what VCs expect of a startup founder, is the first big test to see if someone could ever even think of running a high-growth organization with big potential.
The counter argument usually used lies in the fact that VCs tend to fund people like them and people they know, but I find that to be rarely the case. In our portfolio we have entrepreneurs from a wide number of countries, races, sexual orientations, political opinions and religions. 95% of them we didn’t know before and few had friends in common with us.
Y Combinator and other very early stage efforts have leveled the playing field by giving everyone (who deserves it) an equal shot at starting a tech company. More efforts at this stage will always be very impactful as they put people who might be discriminated in different way on the same starting line, but after that meritocracy kicks in and founders need to demonstrate that they are up to the task for which they are asking other people’s money.
(edit: this has been sitting in my draft folder for a bit, and just noticed Marc Andreessen said something along the lines in his #startupschool talk).
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I wrote this post years ago on my personal blog, but after having invested in ~40 companies (and raised a multi million $ seed round) I’m way more convinced about it and wanted to share it again here on Medium.
Let’s end this bullshit now. Ideas are not worthless. Ideas are important and the very foundation of every successful company.
TL;DR at the end.
The “ideas are worthless” mindset
I feel the industry is failing in messaging a very important point, and that is the fact that ideas are not the only thing in the success of a company. Being in love with the valley’s state of mind, I too have been drawn by this to think that ideas are worthless and execution is king. I actually believed this and told this to every founder that came in pitching their business while I was working in VC as well as almost everyone who asked for advice.
Well, turns out I was wrong. I’m sorry. Your idea was not worthless (even thought it was probably pretty bad).
It took me a while, but slowly I realized how broken this mindset is.
What is an idea?
It might help to define what we’re talking about.
I like to think about an idea as the sum of:
finding a pain
in a fast growing market
hypothesizing a product or service solution
and understanding how to bring it to your customers
So, for me at least, an idea is not: “hey, let’s build an app to get a black car”, but more of:
getting a cab sucks
transportation is enormous and people hate driving their cars around, parking is scarce and expensive
the easiest thing to do is to work with black cabs
we’ll build it as an app and get it to the tech elites in SF to make it look exclusive
It’s a story.
Do VCs value teams or ideas?
Valley VCs like to make you think that they only decide on investments based on the team, but in reality (consciously and unconsciously) what they are really valuing is a mix of factors, best represented by your idea (as defined above). The questions a VC asks and answers in his mind are along the lines of:
does this make sense? Is there a real pain and opportunity? Is the solution smart? Will people use it?
is there a big and growing market for this? if not, can it create a new market?
is this the right team to execute on this idea?
You only get to the team part if the ideas makes sense and the market for it is huge. On top of that, you have to be the perfect fit for the idea you chose (right skills, unfair tech or knowledge advantage, etc.).
Only very few and very early investors can afford to invest based exclusively on the team (Y Combinator most of all), and are probably skewing the message that needs to pass to entrepreneurs.
When I raised my multi-million $ seed round, no one dug into the team’s expertise as deeply as they did into the pain, market, solution and customer acquisition strategies.
The canonical pushback on the argument that ideas are important is the following.
Ideas are cheap. What matters is execution.
Which I would rephrase as:
Bad ideas are cheap. Good ideas are extremely rare and executing them is incredibly hard.
Ideas are valuable. Good ideas are scarce.
And when an investor finds one, he’ll definitely get interested into it even if he’s never heard of the team. That doesn’t matter that he’ll be funding it or that it will work.
There’s one catch tho: evaluating ideas might be one of the hardest and most counterintuitive thing ever.
“the best startup ideas seem at first like bad ideas. […] if a good idea were obviously good, someone else would already have done it. So the most successful founders tend to work on ideas that few beside them realize are good.”
Not many investors realize good ideas actually look pretty dumb in the beginning to people who still can’t connect all the dots together. That is as true as hard to admit for an investor, so big kudos to PG on that.
This is also the only reasonable counterargument to the “ideas are important” philosophy: “ideas are extremely hard to evaluate”. YC now actually lets you apply without an idea. Does this mean that ideas are worthless? No, it means that they are receiving a ton of bad ideas and want to make sure that good founders work on good ideas. So often smart investors will strip down the idea into its core parts of market, opportunity and solution and will evaluate on those before moving on to the team.
When is an idea good or bad?
At this point we should probably start to explore what makes an idea good and what makes it bad, cause this is where most of the confusion happens. But don’t hold your breath, I don’t really know. I like to think that you have a good idea when you have a good number of those elements:
A deep understanding of something specific. An obsession.
Knowing something is true that almost nobody agrees with you on (cit. Peter Thiel)
The realization of a problem, gap in the market, future market shift
A creative and innovative way of exploiting that knowledge
A new enabling technology that dramatically lowers the barrier to creating something (better if proprietary)
A marketing insight to get people to notice your product
Some unfair competitive advantage and barrier to entry in respect to other competitors
A good idea is derived from spark, creativity, business acumen, luck, technical knowledge, madness, experimentation and sometimes laziness.
Wow cool, so that means I should ask everybody to sign an NDA before telling them my idea!
Not even in the slightest. Even tho ideas matter:
execution is still what makes them successful
you should have had the idea because you are passionate about the market and have either an obsession or deep knowledge that other people don’t so:
other people will probably not think that your idea is good and thus:
nobody will even consider copying your idea when they have an already long list of theirs to execute
As a bonus, I’m a firm believer that you should be the right team for the right idea (probably another post about that too), meaning that anyone who copies your idea should fail. (They called this founder/product fit in the meantime)
But what about pivots? Every successful company pivoted from an original idea to something different!
You can’t pivot yourself from a stupid idea in a small market into a great one. Your original insight has to be a decent one first. you have to find the pain.
A pivot should come from a much better understanding of the market, the customers, the technology etc., and should be the ultimate good idea.
A pivot is not: oh photo sharing didn’t work so I’m going to do a subscription e-commerce for pets. And, as a bonus, a pivot is not: “oh podcasting didn’t work so let’s do status updates”, cause that should be phrased like “ok podcasting didn’t work, it was a bad idea because there was no market for it, let’s call investors and tell them they can take their money back or stick with us while we work on a new thing”. That’s not a pivot, but a new company entirely.
SHOCKER: most people invested in Twitter when it was already Twitter. And everyone invested in Facebook, Square, Evernote and Dropbox, when they were already working on the companies we know today.
