Super Founders: What Data Reveals About Billion Dollar Startups with Ali Tamaseb, DCVC

They spent two years talking to every oncologist they could find in New York to learn about cancer, the IT and software they use. Being in the company, they didn't know the specific thing that the company was solving, but they used that credibility and the team and they brought a bunch of people from the healthcare industry later on to go in and start this $2 billion company.

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So when you're starting a company, there's like millions of myths out there and you never know. You always like reasoning with analogy. This person did it this way, this other person did it that way. You never really know what's the right way and what the right way might be for somebody else is not the right way for you. So I couldn't find a better speaker on this topic than Ali here because Ali has collected the largest data set on startups, like 30,000 data points to analyze every piece of it to figure out what makes super founders and unicorns Ali. Welcome to Traction. Thanks for joining us.

I'm glad to be here.

Loyd Ali's got a very illustrious career. He started with an academic background in neuroscience and now he's a vc. He's been a founder. Ali, give us your background. I mean, this is probably the most interesting background that I've interviewed ever. And I've done like maybe 200 interviews.

Thank you, thank you. You're flattering me. Yeah, I mean, I was in academia first. I was doing research, going to conferences and publishing journal papers in the world of BR computer interfaces and human computer interaction. And this was 10 years ago. This was way before Elon Musk made this space sexy and everybody paid attention and there wasn't as much funding for brain computer interfaces 10 years ago. And I've started companies in the fintech space. The last company I started was in the industrial hardware and building wearable devices. Grew that company to millions of dollars in revenues and finally jumped on the other side. And I've been investing. I'm a partner at a firm called dcvc. We are a deep tech fir firm investing in about $2.3 billion under management. Typically lead rounds and deep tech companies basically anywhere from rockets and space satellites to drugs and therapeutics and agriculture and everything in between. That's very hard scientifically.

And then you got into investing. What drove you to get into investing and what sort of companies are interesting for you?

Yeah, I mean, it feels like it's kind of a normal progression for founders to become investors. At one point I may go back and become a founder again and jump back into invest at kind of similar jobs. And investing is a privileged position that you get to interact with a lot of amazing entrepreneurs working on their dreams and their projects and you get to see all of them and try to help here and there as much as you can and see where they go. So it's an exciting position to be. And with deep tech we get to see the future, what's going to happen and the next 10 years. And what I'm interested in in terms of investing is, first of all, my thesis is people. I invest in people. Literally when I source companies, I first look at who and then see, okay, what the company does. And normally I like old industries. People going after textiles, after materials, after construction, after agriculture, chemicals. All of these trillion dollar industries are much bigger than tech itself. So I love companies that go after these kind of things or maybe taxes, the thing that. You're awesome. Yeah.

And you know, I love people. You know, I had a harrowing experience with COVID in January when you think you're invincible. And I used to bodybuild and do 100 burpees at a stretch and then I almost died after a Fundraise of COVID was hospitalized. And I realized one thing. It's not the money in your bank, it's the people around your tombstone that matter. And relationships transcend companies. A lot of people, we added 50 people at boast postar raise from like 30 in December. And most of them are relationships. So I completely admire that focus on people. So let's dive into your reason for publishing this book. Why did you go on this journey to amass 30,000 data points and probably not all of it was analyzing automatically. You probably did some manual analyzing.

None of it was. None of it was. Oh really? It was manual. Wow. So.

Which is against your thesis and your background. So you did manually analyzed the 30,000 data points.

I manually collected 30,000 data points, data point by data point by data point. Took four years. I'll walk you through it.

Awesome. Let's. Let's hear it.

So it all started four years ago. And as a venture capitalist, it's my job to sort through thousands of companies per year to get to invest in a couple. And I've been a founder before and I've seen the narratives and what entrepreneurs look up to. What are the famous stories? Social network movie, I've watched that movie like 20 times. Stories of Bill Gates, Steve Jobs, Wozniak. These famous stories, this is what we think about when we think about very successful companies, kind of role models or what success may look like. And these popular narrative, these kind of five examples or ten examples creates a narrative bias in our mind that we think all these 300 unicorns that are started look like those five examples. And as a venture capitalist, I was seeing a difference between what those famous stories are or what stories make their way to media compared with what actually becomes successful. So I wanted to see, is there actually something different between companies that become billion dollar successes versus the companies that do not raise some VC funding but fail or become small successes? Is it all luck or is there anything inherently different? And I didn't want to look into momentum type of signals. There's a lot of investors who look into if Your growth is 40%, week, week or months over months and you're good, these are all lagging indicators. I wanted to see day one, your team, your idea, your market dynamic, your competitive landscape. Is there anything inherently different between companies that end up billion dollar outcomes versus the ones they didn't? And you would think that data exists somewhere, but it doesn't. There's Pitchbook and Crunchbase and you can find what the names of the co founders are and you can find the history of the fundraising of these companies. But nobody has data on how many competitors they had when they started. Nobody has any data on what the market size was when they started. Nobody has quantified the career path of the founders of the early team. Nobody has quantified the investors, the fundraising patterns, the defensibility factors, the pivots, the product type, the pain points. So I set out and I wrote down 65 data elements that I thought could be useful to study. And I went on and collected this data. And because you know, it takes a lot of judgment to understand who were the competitors, what was the market size. I had to use the, you know, Internet way back machine. Go read historical interviews, Go, you know, read a lot of historical things. Email founders in a cold email these founders one by one asking them, you know, what was this situation look like back in the day? Here I read you have two co founders. In the other source I read you have three co founders. What's the ground truth? What's the reality? That's why it's a manual test. It took me four years, you know, putting together this data, literally one data point by one data point by one data point to create this. And you know, no study is meaningful without studying the, the control sample, the, you know, so I studied the unicorns, but I had to study, you know, the non unicorn students. So I went on and collected the same Data points, the 6, the, the same 65 data elements on companies that raised a minimum of $3 million from venture capitalists but did not become unicorns. So that's my, you know, what's typical seed funded startup looks like, what's the average random startup? And I compared them with the billion dollar group day one on the idea, on the team, on the founders, on everything else. And I wanted to see what was different between them. And as I was collecting this data and finished analyzing it, there was a lot of things that were shocking, counterintuitive even to my thinking. And that's what inspired me to write the book. So I started interviewing a lot of people. I interviewed founders of Zoo, GitHub, Instacart, Nest, a bunch in Healthcare, Flatiron, Health, Kite Pharma. I started putting together the interviews with the dataset and went through the publication process, wrote the book during the pandemic and the book just came out today. It's audiobook, Kindle and physical hardcover books.

Awesome, that's a great story. And I'm seeing here people already saying they've been downloading your book and many of the Companies that you've invested in have also spoken at Traction. We recently had Carbon Health CEO and you called him Super Founder.

I mean, that was one of the key investments that came out of the data set of my book that was predictive of their success. So that's what made me lead that round and Carbon. And look at the company now. It's grown, I think 30x since I invested.

And they're in a very interesting space because they're digitizing or streamlining a services industry. And when you're doing that, it's not your traditional SaaS. So it's technology meets operations design. So we had a long chat about that. So that's very fascinating because right now, if you look at it, everyone wants to see the same SaaS metrics, the same CAC to LTV ratios. And probably those things don't apply to companies that are disrupting traditional industries like that.

Exactly. And these industries are much, much bigger than traditional tech. And you know, a lot more founders should care about them because there's a lot more opportunities they're going towards mining material, you know, obviously health care, governments, civic technologies. There's a lot of opportunities in all of these spaces.

So that's why we're tackling the government tax credit space. Awesome. I dropped a link to Ali's book here, recommended he's donating the profits from it. So highly, highly recommended. One, it's a great book. Two, Ali is a genius. And three, he's donating the profits. There couldn't be a better cause than this. So awesome. Ali, let's get into the traits of a super founder. Then why don't you sell summarize for us the key traits. One, define what is a super founder and what are the key traits.

So you know, a lot of times when we think about these successful founders, we see the last step in the game. We see kind of the overnight success Clubhouse, you know, one year, $4 billion valuation. We think about it as, you know, two guys coming up with an awesome idea and they start a clubhouse. Or, you know, two female founders coming up with a great idea, starting a company, something great comes up. We don't see those kind of years behind it. When I looked into the data, that's what fascinated me the most. That a lot of these founders just looked like everybody else, that they grinded, they failed, they had small successes. So the most common trait among these billion dollar company founders and the most striking when you compare the random group with the billion dollar group, is that all of these billion dollar founders or many of them had a small success before their billion dollar company. And before that they may have had failures, they may had even smaller successes. It's been a journey for them. They've worked for themselves. They had started companies that started side hustles. Even people who we think are first time founders, they're not, they're not first time builders. You go back, look at them, they've built a bunch of things. Now let's start with a bunch of examples. Clubhouse Rohan and Seth they spent nine years trying to crack the code of consumer social. They had nine failed ideas between them and they each had a small success. And what is a small success in the world of venture capital this would be even considered a failure. If you get this $3 million $4 million seed funding and your company's acqui hired by somebody else for a couple million dollars, basically returning the money to investors. That's normally considered a failure in, in the venture capital world. But that's a small step, that's a small success. So for these guys, one of them sold the company to Opendoor. Like AKU hired his company was by Opendoor, the other one by Pinterest before going and starting Clubhouse. If you look at a lot of these other ones, stripe is a 19 year old at 20 something they were multi billionaires. We think about them as first time founders. Stripe isn't their first company. Two companies before Stripe they founded Octomattic. This is an auction management tool for sellers on ebay and a public company Canada acquires this company for $4.5 million. Airtable $2 billion company now and obviously growing super fast. Before this the founder Howie, he started a company and Salesforce acquired it for $25 million. The bar could be even lower I think. Daniel Ek Spotify his company, he built something for a million dollars and it was acquired for a million dollars. Alex Tew this is the founder of calm, the number one meditation app. $2 billion valuation. Six years before starting this company he started this website called the Million dollar homepage. And this is a website with 1000 pixels by 1000 pixels and he sells each pixel for $1. This is before display ads was a thing and he makes a million dollars basically 1 million pixels. And it's not a venture backed company, it's not a startup, it doesn't have a team makes a million dollars. That's the preparation for him to come in and finally starting a $2 billion company later on. This is the trait that if you look at a lot of these founders they ha. They failed a lot of them failed before. A lot of them had a bunch of failures, catastrophic failures, small failures and small successes like this before finally getting and building dollar companies like them. So I think it's very much an inspiration. This is not to discourage first time founders. This is to inspire. It's a long journey. It will have ups and downs and take the journey and the strides and try to get small wins, maybe sell a small company, maybe create a project that makes a little bit of money, create resources, create a network, create credibility for yourself through that process and maybe it's your next project and the next company that becomes a much bigger success. Venture capitalists talk about backing serial entrepreneurs or people with a massive success, but what they're looking for, if you've sold a company for $400 million, let me back. You know, the data shows it's not about going from $400 million to $2 billion. Even these small successes, people who hustle and grind and make some money like this, they' likely to start billion dollar companies than somebody who has just went up the career ladder at Google and is like a VP or exec there, but has never built something, has never hacked something. That's why when I talk to founders, I ask them what have you hacked, what have you built, what have you sold before rather than what's your title now at Google or how many people you manage at this big company. So that's one of the key things. Even first time founders. Bill Gates, Microsoft isn't the first company. First one was Trafo, data traffic surveillance hardware. Zuckerberg. Facebook was his first company, but not his first project. Synapse, a music player app like Spotify in 1999, that was his first project. Microsoft wanted to buy that for $950k. So we see this trait among these founders a lot.

Shania, in all the people you talk to because there's 200 plus unicorns. Were there any first time founders that were unicorns?

Yes, almost 40%. 7, 8%.

Interesting. Cool. Okay, sorry, go on. On some of the other common traits of the founders. But you're saying more than 60% had this trait where they were constantly working on other projects, probably with team members, hacking on the side, failing, moving on, leveling up. And that's a common trait, I think. Few months ago I spoke to Rahul, super humans founder, and he talked a lot about good things, take a long time to build and they'd been at it since 2014, right?

Yeah. And you know, it's about creating this just chain of trust and resources. I think at the end of the day, great entrepreneurs who become successful, they become successful because they have resources to hire, to hire board members, to make connections, to sell to customers, to get funding. The game is about resources. If you have resources, you can build a successful company. The problem is a lot of people don't have resources, enough resources to do all these things. And that's those are the kind of resources you get to build from one company to another, from one project to another, from one nonprofit to another. The founding CEO of Cloudflare, he had started a nonprofit in collecting spam emails, the project Honeypot. Before starting Cloudflare Confluent Neha, she had started Apache Kafka at LinkedIn as an open source project before obviously starting Confluent, building SaaS services around her company. So it's about starting these projects open source, nonprofit, hacking things about different things and going after them now. So this was about the founders. We can look at what we see in the products and the markets and the competition landscape as well. In terms of product, they were a lot, the billion dollar ones, they were a lot more likely to be very highly differentiated. So at the time they were founded, they were bizarrely different from what was in the market. This is kind of like the 10x advantage that people talk about. But even the data shows that the products that looked bizarre and a lot of people were amused by that. A lot of people were shocked by what is this. Even in a bad way, they were more likely to become billion dollar companies than incremental companies or companies that were just a little bit better or just a little bit different. So high product differentiation was another factor by itself. For example, Nest, every thermostat. Thermostat is a 200 year old thing. And everybody has built these rectangular with programmable stuff. And then Nest comes with a round digital thing which is very different WI fi enabled thing that came at that point. The other one is competition. And that's a little bit myth, a little bit characteristic. 85% of the billion dollar company founders, they had competition on day one. It feels like a lot of founders try to say we don't have any competitors, it's an empty market, it's not necessarily a good thing. I think the data showed only 30% of unicorns started in a new market or created a new market by themselves. 70% were working in a market that was already defined, that was already big. It was an established market, it wasn't a white market. And the ones that were competing with incumbents. So if you go in the market that it's like that. And there's a lot of old sleepy giant companies there. Maybe it's the Oracle, maybe It's Visa and MasterCard, maybe it's the banks in each industry to its own. Every industry has their own incumbents. The ones that are competing with those incumbents, they were more likely to succeed, especially compared to those that were copycatting other startups that were already highly funded.

Definitely. And then in terms of the traits of the founders, you talked about hacking together projects, working together. Stress is the preconditions for growth. Right. Like if you don't fail, you don't learn. And you talked about resources people don't realize. Every time you do a project and collaborate with other people, you build relationships and those relationships transcend companies. Like, you know, I'd worked on a number of projects. Now people like that from those companies are coming to work for us. VCs, connections, everything, everything grows. Right. And if you're like working in isolation, you can't.

Yeah. When you look back and, you know, connect the dots of, you know, how, you know, different people and how they came together, it's very interesting, you know, when you look at your career in the last 10 years or 20 and how a lot of these connections go back to different projects you've done.

Definitely. Now I want to drill back into the super founder and then go and dive into the company again. Outside of that, what were two other traits you saw that were very common or high likelihood of success?

So that was the thing about founders, that was the key thing. A lot of other things are myth. The other characteristics that I saw was about the idea to be highly differentiated, the idea to have defensibility. So the companies that had something that was defensible about them, even if it was engineering, obviously network effects, even brand true, you know, creating a community or a defensible habit around it, they were a lot more likely to succeed compared to companies that didn't have an inherent defensibility moat around them. So defensibility turns out it's an important thing. And last factor, it's obviously it's not, it's not correlation, it's not causation necessarily because it's a loop that comes back. But the companies that we are able to raise more money and from Tier 1 VCs, they were a lot more likely to succeed. Now obviously it's not because of that. It's mostly because it was a good team and a good idea and they were able to raise more money and a lot of other Factors. But it was an interesting thing to see. 60% of billion dollar founders already raised their seed or series a fund from a tier one firm definitely.

Now when you look at these unicorns, there's seven or eight traits you saw there and you mentioned a couple of them. What are some other key ingredients you saw there in these unicorns that are maybe, maybe common in the companies specifically?

Yeah, I mean maybe we can kind of use this to move on to the things that I saw did not matter.

Yeah, exactly.

Maybe I want to make it engaging. So maybe ask a bunch of questions about this, what I'm asking the audience and please use the chat for this. What percentage of these unicorn founders in consumer tech do you think had domain expertise like came from that industry? Like if you're building something in beauty, you were in beauty or if you're building something in insurance, they had experience in the insurance industry and things like that. So the answer is 30%. Only 30% of founders unicorns in consumer tech and only 40% of founders of unicorns and even an enterprise B2B came from the same industry. The other ones did not have any domain expertise. Now it doesn't mean they didn't have work experience. On average they had 11 years of.

Work experience, but not necessarily in that industry.

In that same industry they may have worked for themselves, worked in other companies, other industries, but in different types of companies. Okay, so that's about kind of domain expertise. And again when I compare this with the random group, it doesn't necessarily say your less likely, you're more likely if you don't have experience. You know, when I compare the two groups, the same things like domain expertise basically by itself isn't, isn't an advantage, isn't a disadvantage. And basically when you look at a lot of these founders, what was important about them was their speed of learning and their resources to go and network and learn more than anybody else about that specific problem. So they use their network to go and you know, talk to everybody in that specific market and learn more than anybody else about that specific, specific problem and their target. And you know, they changed the idea until they found the correct badge to go into the market. I interview Nat Turner, is the founder of Flatiron House and he's one of these super founders that I talk about. You know, he started from selling snakes to baseball cards to building snake.

You said snakes?

Yeah, I think, yeah, growing snakes and selling them, something like that.

It's amazing.

To a pizza delivery company in college and then to an ad tech company that Google acquired for $25 million, then to starting Flatiron Health. And what they did, they spent two years talking to every oncologist they could find in New York to learn about cancer, the IT and software they use. And even three years after being in the company, they didn't know the specific thing that the company was solving, which was real world evidence. But they used that credibility and the team and they brought a bunch of people from the healthcare industry later on to go in and start this $2 billion company that was acquired by Roche for $2 billion.

Now there's a few questions here. How much did age of the founders factor in? Because there's all these things.

Yeah, let me ask the question from the group. What do you think is the average or median age of unicorn founders? To everybody who was answering, does anybody think the answer they gave the people in that age bracket, do you think they were, or is there an age bracket that the people in there was more likely to start billion dollar companies or not? Like if you said 24, do you think people 20 to 24 were more likely to start unicorns for the age range? You think they were more likely to build a billion dollar company?

I think it's all over the place, am I right?

Yeah, exactly. Somebody is saying before you have kids.

Before family responsibilities, which might be true because like, you know, crazy founders, their families end up becoming collateral damage to the venture. I've suffered myself a lot. But you're saying it's all over the place. Is that, is that what you found?

Yes. So the age range is quite substantial. So it's from 20 years old to 68. The median was 34. The average is 35.6 years old. But when you compare the two groups, the unicorns and the random group, there isn't a specific age where you're more or less likely to succeed. So, you know, none of these, the older people, the younger people, they were not more likely to succeed or less likely to succeed. But I think the 34 year old average is typically higher than what I hear or what the, what the popular narrative is that's, you know, they're 22 when they start or they're 25 then when they start or, you know, some people think they're much older. They think the average is 45 or, you know, things like that. So it's kind of in the middle.

So Sharifa asked here, how important is resource or connections compared to knowledge and proper execution?

I don't have data on that, but my hunch is a lot. I would say it's probably more important resources and connections. Yes, because you can learn the domain expertise, but you can't invent the resources overnight that, that comes up. That takes 10 years to build.

So what you're saying is your network is your net worth.

It definitely is. And it's not, it's obviously not. Your, you have 20,000 followers on LinkedIn. That's not important. It's about, you know, do you have 20 people you can call on that you know, can introduce you to the next set of customers, board members or executives you can hire that they're willing to do the work for you?

I wholeheartedly agree with that, actually. But Fernando asks, if you had to choose one factor to predict success, would it then be resources?

Probably. I mean, if I were, I mean, that's the thing that I said, what have you hacked before? What have you sold before? And maybe that I hope that's created enough resources for you. But I think that the non lagging predictor of that is basically, what have you done before? What have you, what have you hacked before?

Definitely now, when, in summary, I read you talked about like, there is a deliberate ideation process behind successful startups. Is that true or not?

Yeah. So, you know, this is, this is another myth that I think we keep hearing that a lot of founders were solving their own personal problems. And, you know, this came out of their personal desperation with something that, you know, had nagged them for like 10 years, 20 years. And when you read a lot of interviews, they try to connect. You know, when I was in my childhood, I had this closet and that's why I invented cloud storage or something like that. They tried to paint this thread. So when I look at the data, that's not necessarily true. A lot of founders, they didn't solve the same personal problems and they weren't from the same industry. They went through an ideation process, they changed the idea a dozen times. A lot of them took two years. We never hear about that process because we always hear the last step. Somebody takes two years, think about it, change their idea, blah, blah, blah. And then when the last idea was successful, we only hear about that and we somehow hear about, you know, this was my life mission from day one. We don't hear about that kind of process that they went through. So a lot of these successful founders, they had identified a trend or like a market that they thought it's interesting and then they found the correct thing. So, for example, Okta, you know, a company does password management and authentication. A lot of times you may Think, okay, this person was crazy about passwords all his life, but it wasn't the case. He had identified that the move from on Prem to SaaS would create a lot of problems in terms of access. And he wanted to build something in this move to SaaS back in 2008. And he tried a bunch of different ideas. I think his first idea was about measuring how different cloud applications are doing and after a couple tries the idea changed to okta. And that's the same thread in a lot of these very successful entrepreneurs that they change the idea a dozen times. And these are even pivots. This is pre pivot, this is pre company. When they're working at the previous company or just thinking what's next, they jump from industry to industry, from company to another company to find what's working. We end up in interviews hearing about the last version and that's why we kind of feel like the narrative is they came up with an idea overnight and that was the best idea they had. But we don't hear about the process that they took that they found a market, they tried to identify, you know, what's going on and talk to customers and change that idea as much as needed.

Makes sense. Let's look at investment capital. What is the path you see here? David asked, like seed series A, like what are the paths that they followed? When did they raise a seed round? At what point did they raise the A, at what time did they raise the B? En route?

Yeah, this is the not so encouraging part of the data. The billion dollar companies, they were a lot more likely to raise more money and faster than the other companies. The companies that end being successful, they raised more and they raised faster than other companies. So the average first round that they raised were about $4 million compared to $2.3 million for the random group. And the average second round of fundraising for the billion dollar companies was $15 million compared to $4.1 million for the random group. And they raised at a cadence of almost one round every year compared to about know one pound every other year for the random group.

And now when you look at it, people are raising it seems like every three to six months.

I. Yeah, I mean my data covers 2005 to end of 2018 I think VR and an anomaly in the market. And I'm glad my Data doesn't include 2021 because I, because it would, it.

Would go, it would break the data. I have a friend who've raised a seed series A and a series B, I think 80 plus million all in a span of six months. And that is. That is really interesting. What do you think, though, right now, looking at the market right now, what's your take on the kind of valuations at series A and series B? And where do you think the money is going to dry out?

I mean, it's crazy what you see, but I think obviously we know what the reason is. There's a lot of capital in the market and interest rates are low. And venture capital seems like a very reasonable way to deploy that capital because of where interest are and other asset classes. And that's why you see a lot of money in venture and startups. But that doesn't mean startups are necessarily low quality. You see a lot of amazing founders starting companies, a lot of people leaving corporations to start companies. It's like more and more people are starting companies. More and more industries are now being disrupted. It used to be SaaS tech, only that tech is now being verticalized into every other industry from agriculture to, to chemicals to energy to environment. And that's why tech used to be an $800 billion market. Now it's a $10 trillion market or more, because tech is now every industry. So I think that's all good things. Founders going big markets, there's now capital for them. Valuations are obviously a little bit frothy and things may not stay like it is. But I think the bigger point picture here is it's good if more founders are starting companies, more people are employed, and more capital is going to towards people doing innovative things rather than the stock market.

Definitely. And everybody is tech. And if you look at it, Covid has sort of accelerated digital transformation. A few years ago, we had the CEO of New York Times speak and his talk was, everyone is a software company, and that's playing out. I mean, when we started boast, everyone would be like, why are you chasing after tech? You guys are gonna die. But today, like, tech is the biggest industry now. It says here. I think Eric's question was answered. I've heard that founders that solve a problem for their own business, like the founder of Shopify, have a better chance of success. I don't think that's true. You said that pretty much, yeah.

That's basically myth. That's a popular narrative.

What's another popular narrative that you heard that you've not talked about?

I think the other popular narrative is companies that create a new market. Like the companies that create a category. They are bigger companies on average. They're not companies that compete for share and better execute. They are on average, larger companies that the ones that create a new market.

Because one would argue that Apple wasn't the first portable music player. They weren't. They didn't create that category. They came in and they just did it better and executed better.

Yeah, I mean, Apple came 12 years after the first smartphone. I actually have a chapter on that. Actually. That's one of the data points I have. It's on market timing. At least 70% of unicorns, their product and idea, it was a recycled idea. I think that's a staggering number. Less than 30% were first time to market. 70% they were, you know, some of them were fifths or later to market. So it's not about being first, it's about being close to a inflection point. Maybe it's regulation, you know, Affordable Care act that opened up individual health market insurance and that opened up for companies like Oscar hall, the Dodge Frank Wall Street Act. It mandated banks to give electronic access to bank records. And that gave, you know, that open up opportunity for a company like Plaid to create a $15 billion company now. So a lot of times it's regulation, a lot of times it's technology. Back in 1995, when general magic built a smartphone, touch screens weren't working, processors were taking a lot of batteries, so smartphones weren't viable. In 2007, the technology was there. So it happened. Same thing for Uber. GPS costed a dollar per call for European carriers back in the day. And in 2007 it was free. Free with the iPhone. So that's why companies like Uber could get started.

How about in terms of exec hires? Right? So like, you know, you get two hackers, they're really good, they're building stuff and they have a technical background, but really not managed teams. At what point do you see people bringing in? I guess, you know, I often say this, and it's a common Silicon Valley trope. Startups are like pirates. At what point do you bring in the Navy?

So if you're talking specifically about CEOs, that's an interesting data point that I have. That 73% of companies that are acquired or IPO'd for more than $1 billion, they had the founder remaining a CEO at least until the point of that exit. So it's 73% versus 27% in failed unicorns. It's the reverse. It's 57% was a hired CEO versus 47% or 43% the founding CEO. Obviously again, there's no causation here. Company was doing bad, they brought A new CEO. So you can't really predict anything from that. But it's I think encouraging that more and more founders are remaining at CEO until the point of exits. And these billion dollar valuation outcomes in terms of executive hires, they did hire pretty good like from the first hire. Let me give some examples. Stitch fix. Katrina Lake, you know, she wasn't a second time founder. No, no. Amazing track record before. But you know, as some of the first couple hires she, she was able to sell the vision and bring the then CEO of Walmart.com to join her and the then VP of Data Science and analytics from Netflix to come and join her. Same thing for Brex. You know, they were able to bring a CFO and a general counsel from Strike and SOFI to join them. So they were able to hire executives from day one much better than everybody else. And that definitely helps. Part of that is those kind of resources and credibility.

And if you look at all the public companies that's IPO'd in the last decade or so, the biggest outcomes there are founder, CEO led. Right. They've not switched. So your data agrees with it. And then they fail.

18.5%. They generate 18.5% more value on average. The founder led companies.

If the founder can say stay in. Nothing really replaces the vision, then the job of the founder is to bring in leaders to help them realize that vision. Yeah, exactly. Awesome. Any other sort of. Actually, you know what, I'm diving into the questions here. It's so hard to comb through everything that is coming up. Guys, guys, type your questions in the Q and A tab. It becomes very hard for me to parse through. But like there's the last one from Lee. What about race? Like you know, culture, race, like where their background, their ethnic background?

Yeah, I did not quantify that. I think, you know, obviously there's, there's nothing predictive in that. So I didn't want prenup.

Why do you say there's nothing predictive in that? Because I guess a lot of the unicorn founders over there are, are from various backgrounds, right?

Of course you definitely see the diversity there. But it's, you know, I didn't want to talk about or strengthen any stereotypes that might be out there about race and gender. Obviously a very few number of these billion dollar companies were started by female founders. Does that mean anything about female founders? No, it's a trend. There are no more and more female founders starting billion dollar companies. And that's an amazing trend to see and see that strengthen over the years. So I think we'll see a lot of these things become better in the future years and they've definitely become much better over the past five years compared to the past 20 years, for example.

Yeah, you know what, Lee makes a good point though, right? People are always investing in people who are similar to them. Then how do you grow? And I made an interesting post on LinkedIn that sort of is getting a lot of flag. I said culture fit is the biggest BS trope in the history of business. Business try to hire different than similar, align on values versus who can be your drinking buddy or like, you know, who do you connect with kind of thing. So I get that. But I think with more I feel like, you know, everything ties to this theme of resources and connections. If you're connected and you're resourceful, everything else, everything else follows. And how do you break that?

What about part of Lee's question? I think part of it was like if, you know, what if I didn't go to an Ivy League so school, you know, actually there was as many founders of these billion dollar companies that did not go to a top 100 school as there were founders who went to top 10 schools. So you know, there's a lot of encouraging things that you can see in terms of their education, like or. Another panelist asked what did not matter? Education level didn't matter, whether you had a PhD or a law degree or medical degree or bachelor's or mba, that the degree didn't matter, the age didn't matter. Being technical or not didn't matter. So you know, a lot of these, these factors that are proxy metrics, they didn't necessarily matter. And you know, it's encouraging to see that, you know, there were a lot of, you know, people who didn't go to Ivy leagues, who didn't go even to schools, not in the top 100. To be able to start these billion dollar companies by starting their own projects, starting their own companies, you know, it's, it was obviously a harder path, but finally and eventually they got there.

Now here's another question, and this is an interesting one and I think this is going to skew. What percentage of unicorns are self funded versus billion dollars? I know the answer.

92% are venture capital backed, 7% are bootstrapped and 1% are self funded.

Wow. It's a unicorn within a unicorn. It's magic. Basically. It's like finding a part of it.

Is like, I think there shouldn't be much shocking about this. You know, venture backed companies, the idea is, you know, take high risk High risk of, you know, failure to become a multibillion dollar company. There are a lot of amazing founders who create bootstrap companies or self funded companies, get it to $30 million annual revenue and it's an amazing business for them. They have a much higher chance of, you know, becoming wealthy and creating a lot of jobs and be more happy. So it doesn't say anything bad about bootstrap or self funded. Different risk profiles and different takes. A lot of these self funded companies, founders are more successful than venture backed companies.

Awesome. Yeah. Sudhama asks here, could you talk a little bit about visible traits of great execution and this could be from your data or all the companies you meet to invest in. What are the visible traits of great execution?

I don't have a specific data point on that. I would say it's about hiring an exec team early on on. What I look at is who are the first couple hires, who are you able to convince? I always talk about people in your company, people around your company and people talking about your company. Who have you convinced to be in your circle, to be in, ideally to work for you full time if not to be an angel investor or advisors. This is that idea of being able to create that circle of trust, trust around you because these are the people who will bring you customers and bring you the future hires and bring you the future investors.

And then was there any sort of industry barometer one way or the other? Like what percentage of founders shot up to a billion dollar valuation or more quicker than others like B2B B2C specific verticals. Did you find anything in there?

Yeah, I mean it is the B2C ones that became faster. Obviously it kind of makes sense. The deeper tech companies it took longer. The consumer companies that took shorter. However, because there are more companies, more kind of system integration, basically low tech companies being started and a lot of consumer tech companies. They were less likely to build these billion dollar companies compared to companies which were like deep tech or medium tech. It took them longer but they had a little bit bit higher chances of becoming billion dollar companies because there isn't as many companies that are starting in those domains. Obviously the biggest part is software, consumer software and productivity SaaS software. The biggest pain points for saving people time and saving people money. These are the main categories of products that people were building in these billion dollar companies compared to security, safety, wellness, entertainment and other kind of ideas and posts.

Now was there a typical business model that took prevalence over others in that data set?

I did not quantify specific business models that would be an interesting thing to actually quantify. Yeah, I think a lot of companies change it. I think the point is all these companies change their business models from day one to year one to year five.

And Eric asked here, is there a reason why investors prefer B2B versus B2C? I think about that as high risk, high risk reward. B2C is higher risk, bigger market. What's your take on that?

I think it's partly that. I mean it feels that B2B is more controlled, that you can kind of guess what the parameters are, you can understand what the market may look like. It might be an easier job for an investor to assess that compared to consumer ones. But there was the same number of consumer billion dollar companies founded compared to B2B software, B2B SaaS, kind of unicorns founded. So there aren't lesser likely. It's probably just maybe easier to assess for investors.

So Sharif, I asked you, how did they choose between different ideas they have in different industries? Any sort of gauge there like how do you pick what idea to chase?

Yeah, I mean I would probably think number one is passion and number two is the idea of product market fit. Right, who's pulling the product out of you faster and harder. So I think a lot of these founders are trying to talk to customers and see who's buying that and they wouldn't, you know, they would keep changing the idea until they see somebody's asking them, hey, here's my money, give that product.

Definitely. Sharifah asked as a follow up question to resources because as we peel the onion back on each question it turns into like, hey, you need to be super resourceful. What is the best way to connect in your opinion? If you're like, you know, an introvert.

It'S not about going to events, it's not about talking that much. It's, I think it's about doing stuff. When you, when you work on a project, you end up interacting with a lot of people. When you've worked at a company, when you create a company that's very meaningful, relations get built. And I don't think that's, that's relevant to being an introvert to an extrovert. I don't, I don't think being resourceful is about, you know, how many conferences you go to or how many, how many parties you go to and you know, how many business cards you collect. It's about how many deep relationships, deep working relationships you produce. And that, that doesn't have to do anything with introverts or extrovert. I would consider myself an introvert.

I would consider myself an introvert, but I seem like an extrovert. I'm an intro extrovert. But I'll tell you, my thing is we, you know, when we started boast, we had no money. Right. And we grew to 10arr with no resources. But we started traction as a community. And my goal was I wanted to learn from people. So I'd invite them to interview people and then I open them up to a massive community. And that grew over time. But those relationships carried on. I think like small collaborations go a long way. You said something which is very important. It's not about having 20,000 followers on Twitter, but it's about having 20 people that you can rely on anytime for advice. Right.

And that goes for advice or introducing you to somebody or, or get. Because if you're connected to 20 well connected people and you help them and they help you, then you can probably reach to anybody you want.

Exactly. It's about having a small network group of people who believe in you as a founder and your vision. That's great.

And you add value to them. You always need to give more than you receive.

Yeah, give first become successful by enabling the success of others. Anna asked what about solo founders and co founder teams? Any data you found there on like the.

Let's ask the question, do you think what percentage of unicorns do you think were solo founders?

I would say very small. Like what percentage teamwork makes the dream work? I would go with 5 to 10.

Okay, 5 to 10. The answer is 21 out of every $5 billion company was started by solo founder.

But they had somebody early on to help them.

Sure. But it's. And when you compare the two groups, solo founders were not less likely to build unicorns. So again, being a solo founder is not a bad thing. As long as again you have had these resources and you go after the right product and the idea being a solo founder on its own wasn't a negative thing.

Definitely.

Founder of Zoom was solo founder. Flexport is solo founder. There's a lot of examples of unicorns that are solo founder.

Definitely. You know what Philippe asks a very unconventional question or not quite how to convince non tech founders who want to send fund to go the VC route. I end up, I end up convincing a technical founder to go the VC route. But yeah, how do you convince people to go the VC route when they want to self fund?

I mean it's, I think it's, it's very different path. Like I think a lot of founders should consider bootstrapping rather than taking venture capital or because you know every round, every dollar of money you take, you are setting yourself up for less personal success if the company so you can personally be more successful. If you build a sustainable company on your own, that's a medium level success. Rather than taking on so much risk and a stack of preference ahead of you for investors by raising a lot of money in that company, that increases the price that your company needs to be acquired for you to personally and for you and your employees to make anything out of that. I think it's about the risk stage. Do you want to make it big or you don't care? It's like $1 billion company or I don't care even if 10 years of my life was worth zero. If you want to take that path, that's a venture capital pass. If not, then maybe thinking about the other routes is good.

You know what, I'm going to ask a question here and maybe people can say yes. Give the answer here. Do you guys want to be rich or king? Right?

Good question.

And that's what it comes up question. Yeah, that is the value, right? You know, if you can't be both, let me caveat it with that because you can either have happy is a good answer. And so like you know that drives. Right. Do you want control? Then don't bring VCS if you, if you obsess about ice cream.

If you want to be happy, sell ice cream.

Definitely. I want to take the last question here with Casey from Omers. Casey's been a great friend of traction and a supporter. So I want to make sure I answer his question. Given the importance of evaluating the founding team and resources available to them, do you have any advice regarding how to evaluate teams at scale? Are there data signals you can look at to prioritize which teams to speak with?

I mean, I guess the point of this book is to reduce these kind of stereotypes and proxy metrics. So I don't want the book to create more barriers for founders to speak with investors and raise funds. I want to show that a lot of these proxy metrics like education and university or being technical is important. So I definitely don't want the book to become an extra signal or barrier for founders to raise money. But I think it's the ability of the founders to attract these great executive level people to their team in the early days that is a great signal. Even in the seed round, even the series A round, if they can attract these super high level executives, these companies end up doing super well, definitely now.

I want to put a follow up question to that as well. A lot of people are asking questions around what percentage of the founders get booted out of their own company by VCs and whatnot. I think the stat there was 70%. The founder led. CEOs are still there. But this prompts a follow up question. Do you value money, power or impact? And if you think that through, what is most important to you? Impact meaning changing industries, creating a lasting legacy, or money or control power that will determine how you feel about your position in the company. I feel a lot of times right like for me, I don't care about titles. I feel I come from a very poverty, not poverty, middle class family. My father raised a family on like $50,000 salary for, for me I've already surpassed what I thought when I was out of college. So for me it's like okay, can I create impact? It's more important than money or power. Now one last question here on timing. You touched a little bit on it. But what does good luck timing tell us?

I think that's one of the hardest questions to crack the code of. But I think the main takeaway is we don't need to be first. The thing about this idea was tried before and failed. That's not necessarily a valid point and it's a good point. Like if you like an idea and that's failed before, go deep, go try to find those founders, speak to them, understand why it failed. Was it because a chicken and egg problem? Was it because of the unit economics? Was it something around the dynamics or the competitive landscape? Those are valid things. But we ran out of funding, founder conflict, all of these other things, maybe you can do that company execute better and win this time. So go to the root and if there's a lot ideas that are worse using recycled ideas. A lot of these billion dollar companies were in fact recycled ideas.

Definitely Zenya asked here and literally this is gonna be the last question from the audience. If you could give us one or two examples of the 1% self funded unicorns that you talked about. Anyone come to mind?

I think this company called Zscaler, that's a cybersecurity company that was self funded. The founder had sold four companies before so he had a lot of money.

To Zoho I know is self funded too. We inter the founder, they're self funded, took no outside funding and It's I think 500 million in revenue. But folks, please read Ali's book. It's great. Super founders, 30,000 data points fantastic VC, lots of insights to build a unicorn and the money is going to is going to get donated. Ali, what's next for you and Data Collective? Can we expect a part two of this book?

Oh I mean it took four years to write the part one so for now I'm going to to see the launch through and be happy with where it gets but I'm pretty sure it creates an itch for the next things to come. But I hope it creates inspiration and founders to go out and start building things and for investors to forget proxy rules and look at the merit.

Definitely look at the merit. Look at the data and look at the people Any resources you recommend that go to for your whether it's books, podcasts, tools like anything that you leverage from time to time that you read.

Cold email I cold email you Ali that worked. You know cold like don't don't be afraid of cold emailing. People provide valid don't just cold email 300 people like know the one people you need to reach out and you know cold email write a good, you know, one paragraph email. Why you want to talk to them, what's your problem? Provide value to them first and you know that's that. That's also another way to learn. Build a network. You have a question. Find the best person who has solved that problem and send them a simple email saying hey, I have the same problem. You solved this problem four years ago. Can you tell me why or how they will respond and you will create a connection.

Cold email is the leading indicator to all my relationships. 80% of the traction speakers, the 250 plus speakers are through cold email. This is awesome Ali. Where can we find you on social and whatnot?

Yeah, Ali Tomasa, LinkedIn, Twitter. That's where I am and email is alicvc.com awesome.

Great pleasure Ali to have you. I learned a ton. The audience learned a ton. It was super engaging, one of the most engaging sessions we've ran in recent times. So thanks for keeping it thanks for keeping it engaging and wishing you great success with the book launch. Congrats and see you on the other side sometime. I need some trouble Traction thank you.

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