I asked Kathleen Wilson, a smart University of Chicago MBA (aren’t they all?), to assess my portfolio performance as if I were a fund — NET OF CARRY AND MANAGEMENT FEES, even though I invest from my family trust and don’t pay carry or management fees, to benchmark my performance against other funds of the same vintage. The results are above. You can judge for yourself how I’m doing. But if you have trouble reading charts, wink wink, I think you’d agree I’m doing pretty well. 2x IRR of Top Decile says it succinctly. Basically one of every eight investments has been a unicorn.
Geez so many are bonkers and not in a good way. Like all angel investors, I get a lot of inbound deals. I don’t automatically discard them though. Some of my best deals have been inbound. Yes, its true.
However, my focus is tight. I am a consumer investor (marketplaces, some ecomm) and when I do B2B its ecomm enablement — tools that make ecommerce work dramatically better. That’s tight. I don’t do health. I don’t do edtech. I don’t do fintech. I don’t do crypto (at least not now). I don’t do hardware. As I always say my GPs are me, myself and I. To be effective, Quixotic Ventures needs a tight focus. It’s worked. If you doubt that, check out my record here.
Today I was catching up on all the inbounds in my LinkedIn mailbox. There are some real eye-rollers:
- “I designed a prototype I want to show you.” Huh? What kind of protype?
- “…telemedicine scheduling.” No. I don’t do healthcare. Not a single investment.
- “…a tool for educators.” No. I don’t do education.
- “…film financing.” Geez. It’s not even tech.
- “…a crypto coin.” Another one? Why?
- “XYZ is a reusable rock splitter.” I actually read that one out of curiosity. I guarantee you the word “rock” hasn’t appeared in my LinkedIn profile or posts, nor in my blog. But believe it or not, I collect rocks. Yes. Minerals. Ask me about my collection 🙂 But this deal is a big “no” because I don’t do hardware hahahah.
- “I am a startup enthusiast and want to discuss an idea for funding.” Wow that really peaks my interest. Does it get you too? Come on, please be a little more specific.
- “…new platform for sports viewing.” I don’t do sports and entertainment but the pitch note was well written and articulated why this might breakthrough. Nevertheless a no.
- “XYZ is a rental marketplace platform” OK at least that’s roughly in my focus area. Its a marketplace targeted at consumers.
- “I only need five minutes of your time as I have designed a prototype.” Again, what?!
- “Large-scale industrial farming…” Uh no.
- “AI for Advanced Automation…” No off the bat. The note does absolutely nothing to make this real with real world examples. Two buzzwords as the value prop is a buzz killer.
- “XYZ eliminates landfills.” Maybe because I posted about the circular economy?
- “You can bet on dueling pianos.” Hmmm.
These pitches range from decent to ridiculous. Almost all fail and some are totally ridiculous. I have raised money before and I know the temptation is to blindly write as many investors as possible but that’s exactly the wrong way to do it. You can write a long list if you must, but at least do your research. It makes your pitch more compelling. For the eye-rollers, I don’t know what to say. Here are 5 things you MUST do if you’re serious about raising money and not just promoting some wild scheme:
- Look at the VC’s profile and mention quickly why this company fits with the VC’s investing profile.
- Describe your company/product in a way that’s understandable. Buzzwords are a buzzkill.
- Briefly talk about what consumer problem your product solves, why its massively better than existing competition, or why if in a new entry in a category it’ll organize the market and be a big company. Mention the market for context.
- Attach a deck or at minimum a summary and ask for a conversation at the VCs convenience.
- OMG do not ask for a non-compete.
Write a crisp deck with a short, articulate engaging email of your idea. Send the pitch deck before we talk — even in your intro email. Why? A busy angel can get 3, 4, 5 maybe even 10-20 requests for meetings every day in their inbox. Make it easy for us to say yes to a (virtual) meeting. For me, if there’s a lot of back and forth and the founder is coy about a pitch deck, they ultimately get lost in the daily shuffle. Please, please make it easy for us to say yes.
Here are some great resources to make a smart, crisp pitch:
The engineer in you is going to want to debate length and order and you know what? It doesn’t matter. Shorter is better but the best Seed Stage pitch decks show insight and imagination. You are asking us to give you money in an idea that is likely pre-product and or pre-revenue. You have to paint a dazzling picture for us to make that leap.
TL;DR — I invested in Mathison a platform and marketplace matching Diverse Talent with the companies that want to hire them. Love the team. Love the mission. Love the market. ❤️
Gaingels introduced me to Dave Walsh and Arthur Woods, the founders of Mathison. The company is a what I would call a service-enriched platform 😁 😁 😁 enabling employers to find great diverse hires, and diverse talent to find great jobs. What makes the platform truly unique is that they partner with non-profits who serve diverse communities (think Native American Journalists Association, Girls Who Code, United States Hispanic Chamber of Commerce, etc.), giving them tools for their members to find great jobs. For every job seeker that gets hired, Mathison makes a donation to the non-profit. Built right, this could be a real flywheel for the company, driving growth and also creating a moat that competitors find hard to surpass. Already, Mathison has 1.7M DIVERSE job seekers on the platform, ensuring excellent density for hiring firms.
Because the market is immature and fragmented, Mathison can serve as an aggregator. Aggregation of supply makes the platform — or marketplace — very compelling for companies seeking diverse talent across a variety of areas — women reentering the workforce, people with disabilities, older and experienced people, Veterans, formerly incarcerated people, refugees and immigrants and of course Black, LatinX, Native American, LGBTQIA and women. 140 AI models accelerate and automate the sourcing and matching of diverse candidates, aiding marketplace liquidity.
Having been the CEO of a company concerned with diverse hiring, I know that creating a pipeline of talent is essential. It’s not the only part of building diversity into your company’s foundation, not at all. But it is the starting point. And building a pipeline of talent of any kind has been more challenging in recent times because of our high employment rate. Building a pipeline of diverse talent has been all the more challenging. As a talent executive, would you rather build a pastiche of sources that looks like the Million Dollar Homepage or would you rather have a partner with a powerful platform that connects you with truly diverse talent across a range of categories, enabling you to recruit people you might not otherwise have in your pipeline? Easy decision.
I found Mathison very compelling and was eager to invest. I also introduced the company to fellow investor and friend Nico Berardi of Animo Ventures who led a $2M round in the company. Read more about the company and it’s strategy here.
In the spring as COVID hit hard, I thought Mathison’s traction would suffer. It hasn’t. Just the opposite. ARR has grown 7x since the beginning of the year.
I hate Twitter generalizations where people make emphatic, often binary statements about companies, people, investors. Companies are this or that. Founders are this or that. I guess its useful to simplify and emphasize a point in 280 characters. So I’ll try it here 😂
I think the founders of all my portfolio companies DREAM BIG. They want to build industry-creating or industry-changing companies.
Some founders THINK BIG. By that I mean, they are very aggressive and take risks to grow fast. And often they do grow fast. Other founders fail to THINK BIG, they aren’t aggressive, they don’t take big risks and they don’t grow fast.
So you gotta DREAM BIG and THINK BIG.
My last post covered COVID planning. Several people asked how a turnaround actually happens behind closed doors.
If this is TL;DR for you, do these 6 things:
- Surround yourself with completers — people who provide strength where you are weak
- Have a tight, focused strategic direction (know where you’re taking the business) and use that to make decisions
- Debate, even argue but decide
- Be as generous as you can
- Act fast and with conviction
- Communicate quickly as one
Turnarounds are damn hard. Some of you may be in the middle of one now. Figuring out “what” needs to be done is probably not so difficult. If you step back the answers are pretty clear unless you lack a strategic direction. Figuring out “how” is hard because it invariably leads to decisions about people. Brian Chesky, CEO of Airbnb, wrote a heartfelt note to his employees about this. Fortunately Airbnb has an excellent cash position so he was able to offer extraordinary severance benefits. We weren’t nearly as lucky.
A turnaround is not just about laying off some people and moving on. It a whole series of things you do to reset the company in a new direction with a new (lower) level of resources. Here I’ll talk about the lay-off component. In a future post I’ll talk about resetting the direction.
COMPLETERS: I leaned heavily on my CFO and my head of HR to turnaround Organic. Both were awesome and I’d work with them again in a heartbeat. Both were consummate professionals. Having a CFO that was very focused on the bottom line, and a head of HR who was very focused on managing change (reductions) in the right way allowed me to focus on strategic direction, decisions and communication. Good balance of thinking. Of course our office and team leads were superb and an integral part of the turnaround but I’m talking about my day-to-day “completers” here.
STRATEGIC DIRECTION: Decision making usually followed an agenda like this:
- Let’s recap our strategy. Done. Now, how does this initiative, team or person fit into our strategy?
- How much value can this initiative, team or person potentially create? Over what time period? How certain is success?
- What happens to the organization if we take this initiative, team or person out?
Digging into the assumptions was hugely helpful in figuring out where to downsize (which is a nice way of saying deciding who had to go). During our darkest days, we had to downsize nearly 1,000 positions and close offices around the world over a 12-18 month period. That was an excruciating time. We were at a size where I had direct reports — office and team leaders — that had to put the individual names on the reduction list. Agonizing decisions. We had the same dialog about strategic focus, alignment with priorities, about things we could continue to do, and things we could not, about costs, risks, ROI. Even when we were clear about a tighter focus with fewer strategic initiatives, we still had people we couldn’t afford. The decisions were not neat and tidy. They were the hard, messy decisions.
DEBATE BUT DECIDE: Most managers really struggled with decisions about whom to keep and whom to let go. They pushed back hard for their team, for their stars; people they were close to. I would too in their shoes. We argued. Fought. To a point this was healthy and resulted in better, clearer decisions. Some managers were able to get there. At some point, if we couldn’t reach agreement, I had to say “enough!” I often used a lifeboat metaphor. We could only go forward with a small number of people or we would all go under. Period. Each team leader had to make the decisions about who would stay and who would go. Period. It was viciously, brutally, crushingly difficult. These decisions would put people out of work in a period where jobs were very, very difficult to come by. These decisions would break up well-functioning teams. These decisions would destroy morale. But our survival was at stake and we couldn’t overload the lifeboats or we’d all sink. Some managers ultimately made the hard decisions. Some flat-out refused. Last minute heroics — ‘I’ll die for my team, but I won’t let anyone go’ — were not helpful. As the CEO, I had to force those decisions. And more often than not, that manager would be asked to leave.
Generosity is key here. Offer as much severance as you can and — with employees’ permission — circulate their resumes with recommendations to your network.
ACT FAST: Once we had the list, we had to do the terminations as quickly as possible. Why? Everyone knew it was coming and fear paralyzed the company. Communicating terminations was tough. We tried pretty much every method and none was good — in groups, 1:1. All sucked. No type of coating made the pill easier to swallow. In today’s world, there are security concerns about disgruntled employees. Err on the side of caution. At Organic, there were times when we had security on site and visible during terminations. It is an additionally awful feeling for everyone. The best advice is to be prepared and make it a simple, short, dignified conversation. Don’t wax poetic about earlier days. Don’t burden the person with your emotions. For many people, learning they are let go shocks them to the core and its hard for them to process anything on the spot. Give them space and time. Let them absorb the news. Give them the option of coming back to you with questions.
COMMUNICATE QUICKLY AS ONE: Once the go-forward team was in place, it was very important to realign around the strategy and direction — discussing roles, responsibilities, timeframes, risks, etc. — while acknowledging what happened. “Survivor guilt” was powerful. We recognize it. Discussed it. During this time, it was very important for senior managers to “speak as one.” By this, I mean that all senior managers needed to “own” the decisions we’d made. Otherwise, a we/they situation emerged which was counter productive. Believe me, many times, managers laid the tough decisions at my feet. “I didn’t want to let so-and-so go, Mark made me do it.” Demonizing the CEO or other senior managers was not helpful as we moved forward. It created more anger and mistrust. It was much better to come back to the goal of surviving and succeeding, back to the strategy. So when you make the decision to cut your team, the leadership team needs to own that decision together. As one. And communicate as one.
Do these 6 things. Questions welcome. AMA.
I feel your pain, your panic even. How do you plan when you have no idea what’s around the corner? I don’t have the precise answer but I can share my experiences.
This is a TL;DR read. Key messages:
- This is bad. The economy is probably 3-5x worse than what you are planning for
- Make hard decisions fast, build a flexible cost model
- Communicate with your team 3x more than you are now
- Iterate or pivot quickly if your product isn’t selling
- Don’t give up, this is about grit
I’ve been through multiple recessions in this century but NOTHING like this. Look up at the red circles in the chart and you’ll see the recessions and associated job loss in the light blue shaded areas. In 2002, I thought my world was ending. Again in 2008. But these look nothing like 2020. The speed and magnitude of loss is shocking. 30 million jobs disappeared in a month. POOF.
In 2000, I was running Organic, Inc. after the dot-com bubble burst. We built websites and did online campaigns for big brands — many in ecommerce. After the bubble burst, no one would even say the word “internet” let alone invest in internet businesses. Startups couldn’t get funding. Companies that were scrambling to build an internet presence stopped cold. Executives and staff building websites at big companies lost their jobs — going from heroes to pariahs overnight. With that, our $100M sales pipeline literally vanished. Poof! It was shocking — like trying to catch a falling knife. It was crushingly difficult but we made it through. How?
We set a plan (one of many), made the hard decisions, cut staff, closed offices, reduced our real estate liabilities, got to break-even, took our publicly-traded company private with private equity money and started growing again. But, it was really messy along the way. Our financial plan was often wrong, especially in the early days. Revenue was like a reverse hockey stick. We underestimated the drop in revenue too often. From this, we learned to do weekly rolling forecasts (iterative planning) where we scrubbed the data until it bled. We carefully watched trends and then reforecast. (Hit Google and you can find examples of how to do these helpful rolling forecasts with waterfall charts) We then did worst case scenarios and planned costs to them. The key was getting to forecasts we could believe in and having the fortitude to make awful, gut-wrenching decisions.
Then, just as things were looking up, 9/11 struck. It was heartbreaking on so many dimensions. Our NYC office was two blocks from the WTC so it closed immediately and staff began remote work, albeit traumatized by what they saw from the office windows on that horrific day.
Within the company, sentiment and revenue became volatile again. People had had enough: rolling staff reductions, promises not kept and the general stress that comes with working in a business with a highly uncertain future. I think we should expect this roller coaster ride with COVID. As we began to grow, we used more contractors so we could avoid lay-offs when revenue disappeared. Cost flexibility was key.
It was no surprise that the private equity firm put immense pressure on us to perform. We were expected to hit our targets, especially profitability. We got there but it was rocky because nothing was certain. Regular forecasting and extreme cost discipline were essential.
I learned a lot about communications in those tough times. As a CEO I wanted to tell the big story, focus on the vision, the future. But these situations become very personal, very individual, for employees. Its about survival. People want to know if the company will live or die and what will happen to their job and when. They want reassurances. They want probabilities. They want timeframes. As a CEO, you’ll know in these times by looking at the numbers, there is no certainty. I’ve read posts on Twitter where people say that if you’re a mission-driven company, employees will give you more latitude. I’m not so sure. People are too smart for a bait and switch. As a CEO it’s ok to say “I don’t know,” to shut up, to listen. In fact, it’s absolutely necessary. I said it all the time. That non answer was in fact an answer. You cannot over communicate. All-hands, small groups, one-on-ones. Zoom, Slack, FaceTime, whatever works for you. Every time I thought I was finished communicating our plan I learned people wanted more information, more insight. Communication wasn’t something you finished. It was something you did. Everyday. It wasn’t just a task it was the job. That being said, action is important. More important than words. Speak. Act. Deliver. That was the only way out of the black hole.
We also made a company-saving pivot towards the budgets in big companies — away from IT (website development) toward marketing (online campaigns). We also invested a lot in UX design before it was cool. Forrester named us a leader in that area. So we had a highly differentiated new service line.
As online advertising kicked into gear again, revenue began growing at a significant clip and the business began delivering record profits. I guess you could say our story had a happy ending. Many didn’t.
Why did we make it? All the things above plus luck. And grit. There were many nights I’d lay in bed going over the massive boulders in our path thinking we wouldn’t make it. The next day, I’d get up and chip away at those boulders. Other teammates felt and did the same thing. Together we reduced the boulders to sand and cleared the path to success. Hard work. Determination.
Over the past eight years, I’ve invested in five used-goods companies — NiftyThrifty, TheRealReal, OfferUp, Revivn and Remoov. Two have turned into BIG companies; one of which — TheRealReal — IPOd last year. Inspired by my first investment in the category, I studied the segments I believe have most promise. Serendipity got me started but the rest came through focus and intention. Spray and Pray is a portfolio strategy but it is not mine. I’m more of a “craft” investor. 😆 I focus on a segment and keep chipping away, hoping to find a diamond. Here’s how I’m spinning it up in the Circular Economy…
In 2011, Topper — a first-time founder — pitched an online thrift-store in a cold but persuasive email. Topper had suppliers who could provide vintage t-shirts and other items for $1 a pound — about $.20 an item — that he could sell for $15+ while benefitting the environment. Nice markup! Mission-driven concept. We’ve all seen how much pollution and waste is produced by the apparel industry making clothing for a populace that ever more rapidly discards it. The company was aptly named NiftyThrifty. This pitch came before the “Circular Economy” entered our lexicon. Topper had been selling used clothes online with success and wanted to build a real business. Because he was a first-time founder with little work- and no startup experience, part of my due diligence was lunch with his dad where I said “I’d be disappointed if he lost my money chasing this business but I’d be horrified if he took the money and ran off to a beach in Mexico. Please tell me he wouldn’t do that.” The answer was “no, he’s a good guy, he wouldn’t do that” so after some market diligence (p.s. thrift stores are a $10B business) I wrote a series of checks to get the company started on the basis of my research, a stack of tshirts, a powerpoint and a dream. It’s often like that in early-stage venture. We went on to raise several million dollars, hired a great team, launched, got to $40K in monthly revenue but couldn’t break through beyond that. NiftyThrifty ended up in the trash heap. It happens. But Topper recycled the idea and is still at it with another new concept in used clothing. He is an indomitable entrepreneur. I am so thankful to have invested. It was karmic because my return on that investment was ultimately significant.
How?! That investment led me to several promising companies, one of which IPOd last year. Serendipity, karma and some focus on a thesis…
In 2012, another founder pitched me via cold email a local marketplace for used goods called OfferUp. The app had recently launched in Seattle and had 3,000 listings. After a conversation I was interested. Smartphone penetration was up to more than one-third of the population. Craigslist and Ebay were not mobile and OfferUp made it 1-2-3 easy to post an item for sale. I had a meeting in Seattle with a potential partner (largest thrift store chain in America) for NiftyThrifty so I met with Nick, the founder of OfferUp, his team mates and a couple of his F&F investors. Great people!!! I did my homework and ultimately wrote a check. OfferUp has become a powerhouse in local listings and recently acquired LetGo. The combined company has a massive footprint. Both apps are top 10 free shopping apps in the Apple’s app store — right up there with Walmart and Target. I’m looking forward to seeing where Nick takes this important company.
While I was doing my due diligence for NiftyThrifty and OfferUp in 2012, I went to AngelList as I always do to poke around. I came across TheRealReal (authenticated luxury consignment). The moment I saw it, lightbulbs went off in my head. I could see this was right for so many reasons:
- The traditional consignment experience was awful. You drop something off and wait months and months for it to possibly sell then you have to chase the check. Liquidity is painfully slow.
- The market is highly fragmented, filled with mom and pops.
- Fakes abound on sites like Ebay.
- Luxury goods drive a high average order value.
- Sellers could unlock value in their closets, buy more new items they could later consign and buyers could purchase luxury items at an accessible price. Nice two-sided marketplace with a potential fly-wheel effect.
I met the founder, Julie Wainwright, for breakfast, visited their tiny office in Marin County (north of San Francisco) chock full of merchandise, did my homework, invested and joined the board. When I joined, the company was doing $80,000 a month in GMV (sales on the platform), around the time of the IPO (June 2019) it was doing about $80,000,000 a month in GMV — a 1,000 increase!!! I’ve written about the experience previously. It was awesome.
I was on a roll in used goods, owning that thesis. 😂
Fast forward to 2016. My friend Nathan (whose company I had invested in previously) introduced me to TheRealReal of corporate IT called Revivn. They offer a white glove service where they come in, take used hardware away and repurpose it (revive it!) so it doesn’t go in the landfill. It’s a white glove service that gives old hardware a new purpose. The company has been easily profitable since I invested. I’m very interested to see where Anthony takes the company.
In 2015, I was introduced to a founder also focused on used goods. Luis was building a company called Remoov. Let’s say you do a big spring clean or you’re about to move and you have a big pile of junk that’s too much for you to sell on OfferUp or TheRealReal and you’re not really sure of the value anyway. You call Remoov to come pick it up. They take it away, evaluate it and either sell it, donate it or recycle it. If there are any proceeds, they share them with you. 35+ million people move a year in the US so it’s definitely a large addressable market. Luis pitched me in 2015 when they had one operation in SF. I was interested but declined and asked to stay in touch. Luis continue bootstrapping, built a good business and decided to expand to Phoenix. He did a superb job keeping me updated on the business and in 2019 I (finally) invested and referred him to another investor that wrote a big check.
I’ve done high- and low-end clothing, and accessories. I’ve done computer hardware. I’ve done home goods. What’s next?
Early stage venture returns are definitely quixotic. Impractical. Idealistic even. But thousands of us are chasing them. At the end of 2019, I reviewed the performance of my portfolio:
- My Cash-on-Cash return is 10x in 13 years
- My Realized+Unrealized gain is 13x in 13 years
My goal is to for Quixotic Ventures to grow value (R+UR Gains) by 1x per year. 🔥
How did I get to a 10x Cash-on-Cash return? Twitter, various other exits and TheRealReal. TheRealReal — the global leader in luxury consignment — went public in June 2019! Hooray for my second IPO (Twitter was the first)!! Wow, it takes a long time for these eggs to hatch. At the close of the first day of trading, the company was valued at $1.6B. I joined the board back in 2012 when the company was doing about $80,000 a month in GMV (sales on the platform). At IPO, GMV was about $80,000,000. Achieving 1,000x growth in 7 years was an amazing scaling experience… basically a double PhD in building a $Billion e-commerce business. The IPO was a proud and joyous moment for me, even beyond the great financial return. I was thrilled to see a woman at the helm, over 50, join the ranks of female CEOs running public companies. It doesn’t happen nearly enough and it was very exciting to see first-hand. I have enormous respect for Julie Wainwright. She is an internet giant. I was also excited to see the success of my former Linden Lab colleagues in the CMO and CTO roles at TheRealReal, and all the amazing team members that built this extraordinary company.
Other portfolio highlights…
Offerup acquired US competitor LetGo, building a powerful combined company serving major US markets. Last time I checked the appstore, Offerup was the 7th most popular free shopping app right above Ebay and right behind Walmart, and Letgo was the 10th right above Target. These companies, combined, have a powerhouse position in used goods. Wow! When I invested in Offerup in 2012, it had about 1,000 monthly active users in Seattle. Now the combination has more than 20 million monthly active users — 20,000x growth since launch.
In 2019, Refinery29 was acquired by Vice Media so now I own some Vice shares. Vice gives me a very different perspective than my daily fare of the WSJ, NYT, WAPO and NPR. 😱 😲😀
Homelight, which raised $109M in 2019 has become a significant company using AI in residential real estate transactions to match sellers and brokers in value-adding ways. You’ll hear more about Homelight in the future as I am super impressed with their growth.
SKTCHY made an interesting (and highly profitable) pivot. SKTCHY picks the most popular artists from their community to create online courses for artists. Although this offering is less than a year old, it is doing extremely well and the unit economics are fantastic. Startups take grit, and Jordan — founder of SKTCHY — has been single-mindedly focused on profitable growth.
Apptopia provides app publishers & developers access to app intelligence worldwide.
Blanket.ia helps companies book more demos – important in this B2B sales environment where in-person connections are rare.
I invested in three companies:
- Flourish offers seed-to-sale supply chain tracking for the CBD and Cannabis industries. This is my first investment in the Cannabis industry. It fits my thesis of enabling ecommerce…in this case Cannabis-Commerce. A big thanks to Krillion Ventures for the referral.
- Mathison is the largest diversity recruiting network and platform, connecting diverse job seekers to organizations that value equity and inclusion.
- Remoov picks up, sells and donates or recycles all your unwanted items. Goodbye clutter hello relief! This is my 5th investment in the used goods space.
Fame and HYP3R closed shop — which happens in the venture world. The founders of both companies are go-getters so I expect great things from them in future endeavors.
My last post was about my performance over the past 11 years. Read about it here. This time I’m writing about how I do what I do.
I’m a bit of a misfit and always have been. When I was a kid, I was making art when everyone else was playing with swords. In my teens, I read classical literature instead of playing video games. In college, I didn’t move into student housing until my senior year (then moved out as fast as I could). I didn’t work the required 2-3 years between undergrad and business school, I jumped right in. Early in my career, I didn’t job hop to optimize salary and position, I stayed put, worked hard and (relatively quickly) moved up. I’m “different” and over the years I’ve learned to “own” it because it’s worked for me.
Similarly, when it comes to venture investing, my approach is different from many investors. Most early-stage investors go for:
- Large Portfolio Size: Many people believe you need a massive (think 500 Startups), diversified portfolio to get hits. I believe that’s a strategy but not the only strategy. I have shown you can get outsized returns with a tight portfolio (11x in 11 years) — which takes selectivity, restraint, focus and sometimes intensive founder support. I go for selectivity and support over portfolio size.
- Major Startup Hubs: Many people believe you need to live in one of the major markets. I live in Miami, not Menlo Park although I do spend a lot of time in NY and SF. I do deals where I find them…Seattle, Edmonton, Miami and of course the major markets. I don’t screen out companies based on their location as others do. Valley VCs didn’t want to do OfferUp’s seed because the company was in Seattle. I go wherever I find a great company (within reason).
- Hot deals: Many people believe you have to be in the hottest, highest-profile categories chasing incendiary deals where every firm is fighting for allocation and those with the inside track win. I’m sure it works for some but it’s not the only way to win. It may be essential at the Series A and beyond stages but not so much at the Seed stage. Some of the greatest unicorns lost the “hot or not” match up at the seed stage. Just talk to those founders and they’ll tell you how hard it was to raise their first round. I don’t jump on noisy bandwagons. Sorry for the mixed metaphors. Even though I was the CEO of Second Life and learned a lot about virtual reality and virtual currency (both Second Life and the Linden Dollar were the largest virtual worlds and virtual currencies at that time), I haven’t done a VR or Cyber Currency deal although I’ve had good deal flow. I think we’re still at an early stage of development in both areas. When the right company comes at the right time I’ll jump in. Nor do I shop hot “trends” like AI. Yes, I like AI applied to a very specific business problem but I don’t get hung up on the fact that it’s AI solving that problem. I didn’t invest in Blackbird because it used AI to power amazing visual search results (their side-by-side comparisons were breathtaking.)…I liked the tremendous business benefit that the company could provide to its customers. I don’t look for hot deals, I look for great companies.
- Major Market Visibility: I’m not above, or even in the crowd. I don’t hang with the cool kids south of Market. I didn’t work at Facebook or Google or graduate from Stanford. I’m not on a hit TV show. I don’t party with celebs. I’m not a prolific blogger, Tweeter or Quora contributor (although I am a HUGE consumer). Sure, I’d like to be famous but chasing that isn’t my thing. I avoid the accelerators and I don’t enjoy conferences (except TED — yea, yea I know it’s not a conference). But I do cultivate my network — which I’ve built assiduously over decades — so I’m blessed with great (and sometimes overwhelming) deal flow. And I prospect actively. When I see something I like, I call on the founder (e.g., Twitter, HomeLight and TheRealReal).
- Proprietary Deal Flow: Some investors believe you have to have proprietary deal flow to drive returns. What does that mean when everything is on Angel List or comes through an accelerator? At one time it was about proprietary flow…but now – more than ever – I believe it’s about selectivity. I believe selectivity is THE super power at the seed stage. And that is a truly contrarian belief today. More on that in a bit…
If I had to categorize myself, I’d say that I aspire to be the “Good to Great” VC. I’m a huge fan of Jim Collins and I aspire to be humble, generous in spirit and focused on excelling at the basics.
As for my super power, I think its Selectivity. It’s not because I think I’m some kind of savant. Not at all. No, it’s Malcolm Gladwell’s 10,000-Hour Rule at play. Except I’ve studied companies for 70,000+ hours. How the hell is that possible? Well, here’s how: I was a management consultant for 12 years, working 60+ hours a week. That’s 36,000 hours in which I evaluated industries and markets to find those most attractive, assessed companies to find their strengths and weaknesses, evaluated organizations to find gaps, dug into operations to find shortcomings to fix and core competencies to exploit, rolled up my sleeves to help companies build new businesses, optimize operations and employ technology to win in the market. It was an amazing learning experience. Then I ran a big digital agency for 8 years, helping companies leverage the internet to build new businesses, reach new markets and get and keep customers. That’s 24,000 more hours. On top of that I’ve been selecting startups for 11 years. Now, when I look at a company, I can pretty quickly understand the size, dynamics and attractiveness of the market, the uniqueness of the company’s proposition and the strengths of the team. With 70,000+ hours of experience, I’m quick and thorough. And I believe this gives me an edge.