Backing Great People
I was catching up with a founder friend last month. Compared to most founders in the healthcare space, he doesn’t have grey hair (as a matter of fact, he is probably still in his 20s) nor any “insider connections” - but he is super smart and what he does have is a brand new perspective on how healthcare should be delivered in a digital world. His company went from zero to $5B in mere 4 years.
I was a seed investor in his first company but not the current one for various reasons1. We were simply catching up and reminiscing the old days - the learnings and the struggles2. Then out of a sudden, he said:
“Jay, do you know why I didn’t choose to raise capital for my second company from the old investors?”
“No, I really don’t…" I was caught a bit off guard but I have always wondered why he did not ping our fund at the time for the fundraising.
“Well, after the first company’s failure, I just feel so bad that I might lose investors’ money again - especially the ones who had believed in us - that’s why we didn’t want to pitch the previous investors again…”
Without me interrupting his thought, he continues…
“But sitting where I am now, I realized that was a mistake. I realized that investors would back great people again and again - no matter what they do…”
“That’s right! That’s why I backed you in the first place!” I interrupted with a bit of mixed feeling, “well, might never be too late to partner up anyway…”
“Yep would love to. That’s why we have been staying in touch…”
The conversation then went on to other topics.
But after the catchup, it left me thinking a lot. I want to talk about the core of startups3?- the people who build something from nothing, the founders.
In venture, there is a saying that when one finds post-PMF tech companies in a large market, one should really double-down and triple-down on them because a) these companies are incredibly rare and b) that’s where the money is made.
There is lots of truth in that.
As we have discussed in the last essay of “trillion-dollar phenomena,” these high-quality tech companies are creating and capturing value at an unprecedented speed and scale. So when you find the next “Apple / Microsoft/ Amazon/ Google” -?it doesn’t matter if you find those companies 20 years ago, 10 years ago or even 3 years ago - hold on to the shares with your dear life!
Well,?the same can be said about high-quality founders.
Let me explain.
In early-stage investing, a big part of what we do is to assess the quality of founders very early on - and we do that a lot.
Great founders tend to have the following qualities:
These people are very rare and not that easy to identify. By definition, they don’t have to be “mainstream-recognized” or in the “Forbe’s 30 Under 30 List” - as a matter of fact, they often aren’t4.
They are “the round pegs in the square holes”5.
At Leonis Capital, we love people who are the underdogs, the so-called “non-consensus” founders who are under-appreciated at first but fully recognized by the world later.
I am thinking about Nan, Weixi, and Ken at?Sleeper; Deidre and Daryoush Paknad at?Workboard; Brad and Toby at?Lime; Alex Li at?Kubit AI; Jesse Zhang at?Lowkey, among many other great founders I’ve got the fortune to have worked with.
The great Sleeper team - I’m the smallest head in the back…:)
In almost all cases, they were considered outsiders and they were not “hot” by Sandhill Road standard, at least at the very beginning.
Nan, Weixi, and Ken at Sleeper were building Sleeper for 3 years in the garage before they got to their first seed round6. Workboard did not have an easy time convincing other VCs during the early days, despite Deidre and her husband's impressive entrepreneurial background7. Brad and Toby were investors before they become founders; Alex Li went into the Kubit journey as an atypical solo founder, out of the strong conviction that there is a better way to do modern product analytics; and Jesse, a young talented first-time entrepreneur, has stewarded the company through multiple product pivots, through the leadership reconstructions, to a?fast growth trajectory that the company is in.
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None of these founders were the so-called “mainstream” founders or the “obvious bets” - but they persist and prevail. I can recall the early days of these company journeys just like yesterday. Those days were quiet, lonely, and often accompanied by many early struggles and late-night texting.
But those days were beautiful too.
To me, it’s almost poetic to see these companies overcome the early obstacles and become the well-recognized companies that they are today. The experience and lessons learned from starting a company are so unique that you either have it or you don’t8. I might be a hopeless romantic in sticking with founders during those critical early days, providing all that I can.
It is my genuine feeling that I have been incredibly lucky to have encountered, bonded, and backed these “non-consense” founders very early on. But most importantly, they are just good people - talented good people. To them, I’ve always felt like I have not done enough and there is always more that I can do to help.
But for whatever reason, once they take off, they are really taking off. And as an early-stage investor, I can turn my head to the next-gen of “non-consensus” entrepreneurs.
Startups are not just corporations - at the core, they are groups of founders who have ambitious ideas and the conviction to build something from nothing - so as an early-stage investor, the best thing one can do is to be like that:?be ambitious and full of conviction in how we make investments. Just like how a founder would with her time and her career.
In order to back non-consensus founders, we have to have our own independent thinking and be not afraid of contrarian point of view; in order to be a long-term partner to those high-quality entrepreneurs, we have to always be in the “day zero” mentality to uphold the reputation; In order to back great people, we have to be great too.
And when you find those great founders, you want to back them again and again.
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*The essay was first published at Next Trillion, you like what you read, feel free so share and subscribe so that the next one will be delivered to your inbox directly.
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I certainly kicked myself for it!
His first startup was eventually shut down and the team managed to return the majority of the capital back to investors.
Actually, not just startups - they could be a petition, an initiative, or even a country.
These types of capital dislocation and market inefficiency is the reason why we exist. Frankly, that’s how we, an early-stage venture fund, can generate superior alpha returns by backing those founders before others would.
https://fs.blog/2016/03/steve-jobs-crazy-ones/
The company later raised a good amount of capital from General Catalyst and A16Z.
Workboard was later backed by a16z, GGV, and Softbank.
And that’s why if you are an entrepreneur-turned-VC, it might be easier for you to emphasize with founders at a deeper level. And the second-best thing to have is to be along with the ride, from the very beginning.
COO NextTribe, Inc.| Author, "Start Me Up"
3 年You are a wise man, Jay. Wise, and cool. ??