The GOAT and The?Farmer

Why Seed-Stage Investing is Like Drafting For An NFL Team

**Originally Published on Medium, April 26, 2019**

You’ve probably seen the infamous picture above.

If you haven’t, this lugubrious ‘Dad Bod’ at the 2000 NFL Combine belongs to the 21-year old quarterback prospect from the University of Michigan named Tom Brady. Every year, NFL hopefuls work out in front of scouts, coaches, general managers and (now) live broadcast audiences at the NFL Combine where their measurable attributes are officially recorded and after which their draft prospects get dissected, debated, and assessed ahead of the NFL Draft.

Tom Brady infamously had one of the worst QB Combine performances ever recorded to date. His vertical jump was 24.5 inches which barely beat out his much heavier offensive lineman. His 40-yard dash time of 5.28 seconds still stands 19 years later as the slowest recorded time for a QB at the Combine.

On numbers alone, Tom Brady came off as the worst quarterback prospect in NFL history and his scouting report was just as savage as his stat sheet:

“Poor build, skinny, lacks great physical stature and strength, lacks mobility and ability to avoid the rush, lacks a really strong arm, can’t drive the ball downfield, does not throw a really tight spiral, system-type player who can get exposed if forced to ad lib, gets knocked down easily.”

The 2000 San Francisco 49ers front office came to a similar assessment which is noteworthy because young Thomas grew up not far outside of the city as a life long 49ers fan. Like his idol Joe Montana, he wanted to play for and be cheered on by his hometown crowd.

As Coach Steve Mariucci is reminded every Draft Day, the 49ers had other plans. They had lefty wunderkind Steve Young whose mobility and athleticism they applied to great success in Bill Walsh’s fabled West Coast Offense. With his abysmal combine performance, Tom Brady wasn’t even part of the conversation. With the 65th overall selection in the 2000 NFL Draft, the 49ers did select a quarterback — Hofstra’s Giovanni Carmazzi.

The 6'3" square-jawed strong-arm QB ran a 4.7 on his 40, was a Rhodes Scholar candidate, point guard of his basketball team, and aced his Wonderlic test. The 49ers planned to stash Gio behind Young to “mold him”.

Meanwhile, Tom Brady fell all the way to the sixth round and with the 199th selection was drafted to the then perennially stagnating New England Patriots. An injury, that benched his predecessor Drew Bledsoe, later and Tom Brady has become the biggest steal in NFL Draft history.

The Wisdom of The Draft Board

To be charitable to the men in the war room, the lead up to the NFL draft is by no means an easy time. Teams screen and evaluate hundreds of players at the same time, trying to discern which ones fit within their strategy, needs, and goals. When it comes to the lesser-known picks after the first 2–3 rounds, it gets that much harder because there is a growing base of viable players but each with less ‘game tape’ or ‘big’-stage’ performance' data than the last.

Being a seed-stage venture capital investor is, at its core, really not that dissimilar. Our fund saw 434 prospective companies in 2018 to arrive at 17 picks. Like any NFL team in hindsight, there are picks we wish we had gotten but ultimately lost. Less than a year after the “draft” is also too early to be sure which investments will become winners and which ones will continue to struggle. With long feedback cycles on both drafting and seed-investing, many future ‘great picks’ can take a few extra years to develop. Others languish early so are cut and abandoned, or traded in the secondary market, just to have another investor bring them up into a system that unlocks their talent, contribution, and ROI.

If we operate in a world of largely capable General Managers and distinct performance measurables, why are the NFL history books full of stories of Undrafted Free Agent phenoms like Kurt Warner, Warren Moon, and Tony Romo? With KPIs and OKRs, why does every successful start-up founder have stories of the 100+ seed funds that couldn’t see their potential and passed?

Both investor and GM roles operate within teams with imperfect information where human bias factors into high-value decision-making under uncertainty. For example, while Tom Brady lacked impressive physical measurables, he had positive signals for future success in his past performance. He posted a 20–5 record with wins at the Citrus Bowl and Orange Bowl and was widely praised for his leadership and mental makeup.

Still, many teams were scared away because the Michigan head coach refused to name Brady the starting quarterback early in his senior year. Brady would start games but share snaps with sophomore Drew Henson — not a ringing endorsement. As an investor are you biased towards your personal assessment of this company’s history and team make-up, or the lukewarm signaling from the last investor?

Like many unimaginably successful outcomes, TB12 ending up in New England also involved a combination of luck and skill:

“Belichick did a lot of homework on him… and thought that Brady was ‘the best fit for the [Patriots’] system‘. Others in the front office and among the coaches agreed… Watching the tape, he was the guy that would go in and lead [the University of Michigan] back to victory.”

It’s a relevant parable for portfolio construction because the funny thing is, Drew Bledsoe was 28 and entering his prime so the Patriots didn't need a quarterback (and they had 14 other slots to fill). They broke from that dogma to realize that the value of a player they liked at this point of the draft outweighed other needs the team still had. As a seed VC should you stay dogmatic about the parameters within which you invest (e.g. ownership, valuation, geography), or do you let yourself break them for the right opportunity? How often can you break a rule before it stops being a rule?

It comes down to understanding and documenting both what you and your selection processes value most. What I might consider uninspired or plainly asinine ideas get funded by top-tier seed funds all the time in part because of the academic pedigree, big-tech career experience, or a noteworthy referral, of the founder. Maybe these credentials create more comfort for that particular investor when there’s a lack of data on past performance. Or maybe it’s because you don’t usually get fired for drafting an Alabama prospect into the NFL or funding the seed round of a Harvard/Stanford graduate.

I’m not absolving myself of the blame here either – good diligence takes immense amounts of time and energy so, like all investors, I design short cuts where I can, to screen opportunities faster. For me, the litmus won’t ever be age, education, or brand of your previous company, but who’s to say the variables I value are any less vapid. If a company I screened out goes on to exit for $1Bn+ will the knowledge that it “lay outside my pre-determined investment criteria” be adequate solace for my ego or fund returns?

Taking Wrong Lessons From The N ‘If’ L Portfolio

How do you know if the right process produces the wrong result? Former Jacksonville running back Maurice Jones-Drew said he wore the #32 to remind himself every day that all 32 NFL teams had passed on him at least once in the 2006 Draft. Scouts cited his height (5 ft 6? in) as the reason why he would not succeed in the NFL. Jones-Drew turned out to be one of the best players in that draft, played nine seasons in the NFL, was named to the Pro Bowl three times, and led the NFL in rushing yards in 2011. A few years ago he joked that:

“Half the guys drafted ahead of me work at Target now.”

Were all the teams wrong to pass? Actually, probably not!

They likely made the right decision given the information they had. In truth, MJD is an outlier — the undersized UCLA product who set numerous Pac-10 records. Do you give a higher weighting to the negative that he was undersized or the positive that he set Pac-10 records? Taking undersized runningbacks is an undue risk and the less-risky pick was likely passing for a running back that fell within the taller height distribution of previously successful running backs. Pattern matching, though safer, made it harder to identify outliers.

It’s easy in hindsight to have regret but I posit: what if 32 NFL teams passing on Maurice Jones-Drew is one of the factors that drove him to his ultimate success? What if all those seed-funds passing on your start-up’s round actually pushed your team to find creative ways to stay alive and helped you (or bought you time) to achieve product-market fit? It’s hard to prove in retrospect and harder still as an investor to know if you’re taking the right lessons from that miss.

You can’t know in any one particular case whether the strategy is wrong or the outcome is just, exceptional. The real lesson comes from codifying your values into a repeatable process that produces more winners than losers, in the aggregate, and from iterating for improvement from there. It also means respecting the role of sheer luck in your investment successes and importantly, not rationalizing away your own misjudgment in your failures. Sure, Belichick drafted Brady but he’s also drafted a veritable who’s who of “Who’s that?” including Chad Jackson, Ras-I Dowling, and Dominik Easley – all in the first rounds.

In the aggregate, Belichick’s Patriots have 6 Super Bowl victories in 9 appearances over the last 18 seasons. Even as a New York Giants fan, I won’t deny I’m envious of that fund’s hit rate.

The Goat & The Farmer

Gio and Tom actually shared a field once at the 2000 Pro Football Hall of Fame Exhibition Game. While Brady threw a touchdown in the 4th quarter, Carmazzi struggled mightily, completing only 3 of 7 passes for a paltry 19 yards in a 20–0 loss. Mariucci recalls vividly:

“It wasn’t good in person, and it was just as bad on film. Guys were coming off the field saying, ‘Gio is so nervous … He can’t spit out the formations and plays.’ We could tell right away that it wasn’t a fit. Something went way wrong when Gio entered a professional huddle. He didn’t know how to handle it.”

Giovanni Carmazzi played for a few more years between the CFL and NFL’s failed Europa League before injuring his arm and retiring from football altogether. Today, he lives two hours north of San Francisco and describes himself as a ‘yoga-exercising farmer’.

One man is widely considered to be the NFL’s GOAT, the other man is now a goat farmer.