How to Stand Out in the Startup World with Mike Maples Jr.

A great startup situation has founders, early employees, early customers and partners, early venture capitalists who all believe in the same crazy secret about the future. And so what I, what I say to founders is you don't have time to waste on people who aren't ready to believe yet. You're not going to convince them, you're not going to change their mind. And so what, what happens a lot of times is Founders get bad advice. They get advice from everybody they talk to. And most of the people that they talk to are conventional thinkers who aren't prepared to believe their crazy belief.

All right. So I've been waiting for this for some time. Mike Maples is one of the top investors in Silicon Valley. He's not only a great person, he's very honest, but he's super thoughtful about the craft of venture capital. So what he's gonna do today is share some of his insights from being a venture capitalist for 20-ish years and writing a book recently about his experiences and lessons learned, which by the way show that a lot of the thinking that venture capitalists have about the world is kind of wrong. Or at least a lot of these popular models are not right. And he's going to discuss his lessons and some new models to think about as well. If you got questions, pop it in the Q&A on the right and we'll definitely get to it at the end of the session. So, Mike, why don't you do a quick introduction of yourself and then we'll jump right into what you're working on with the new book and your new thinking.

All right, cool. Yeah, so I invest way too early in startups. Too early, way too early, or sometimes even legally ambiguously too early. You know, so like the question on people's minds when we were, when Anne was, my partner Anne was in the board meeting and they're deciding to launch Lyft was not whether we thought Lyft would be a successful product, but what do we do about the fact that it's illegal? You know, I tend to invest in these things before we really know what they're going to be when they grow up. So I invested in Twitch when it was Justin.tv and Twitter when it was Odeo and Okta when it was Sashur. And so, you know, when I mean too early, I mean it literally. So that's kind of my job is to spot these companies that are going to change the future And because I do it so early, I like to think of myself as more of a co-conspirator than an investor because I have to believe in the same crazy set of things that the founder believes in when most of the world still disagrees with their disagreeable act of trying to change the future. So that's, other than that, there's about a million details, but I'd say that's my primary job description.

And you do it pretty well, right? And so you've been thinking a lot about the craft of doing it. And you put those thoughts into a book, right? And so why don't we— what would you say is, you know, one of your seminal realizations that have come out of that whole thought process that you've gone through and the book that's coming out? And maybe you could also add when the book is coming out.

Yeah, so it's funny, Adeo, because like One of the things I've learned about this business is how wild and random and crazy and humbling it is, right? So like the temptation when you're an investor, because you wanna think you add value somehow or know something somehow, is to have these really fancy frameworks and come down from the mountain and say, I've got a crystal ball and I know the future and that kind of stuff. But the genesis of this book was kind of the opposite. So about 10 years ago, Twitch was acquired by Amazon for $970 million, and we made 84 times our money on this investment. And you'd think normally that's a pretty good thing, and it was a good thing, but the problem was that I didn't even remember that I was a shareholder at Twitch. So I had invested in a company called Justin.tv about 6 years prior, and it morphed into 2 companies, SocialCam and Twitch. And Socialcam was acquired for $65 million, and we made about 10 times our money on that one. I just thought that was the company. I thought they'd probably split them in two because that was the real asset. So I'd forgotten about Twitch. And the next thing I know, I make 84 times my money on this thing, and I have to go to my LPs and say, do you want me to restate my financials? I don't, I didn't have Twitch in my portfolio. I didn't have any valuations for it. The audits didn't include it. And so fortunately, my LPs were like, nope, we're good. Just send the money. That's awesome. You know, I got a couple of really nice bottles of champagne, but then I kind of zoomed out. And that same week, I was helping a guy shut his company down. And he did all the stuff you're supposed to do. He did the business model canvas and he, you know, all the books we read about what you're supposed to do when you do a startup. He did all those things. He had a good team, he had a high-performance culture, had good names for the conference rooms. You know, he did everything you're supposed to do. It would've been a Harvard Business School case study except for the fact that it failed. And then I sat there and I thought more about it and I realized that 80% plus of our exit profits had come from pivots. You know, Twitch is one example, but the prior fall, Chegg and Twitter went public within a week of each other. And both of them had been crazy pivots. And, you know, as I said before, Okta had started out as Sasher. And just as this was happening, Lyft had just launched their service and they were starting to blow up in San Francisco and they had pivoted from Zimride. So I was like, okay, what if I'm just a lucky fool? Like, what if this whole thing is random? What if, you know, I should just retire before I get exposed? Because if it's random, there's no reason to believe that I'm going to ever have any success in the future any more than anybody else would. And so, I was like, okay, this is either random and I need to retire and just admit it, or there's something else going on here that's worth understanding. Because like, I couldn't, you know, I could not apply the frameworks I knew for disciplined entrepreneurship in a way that made sense. So, that was kind of the genesis of the book. You know, when it comes to, you know, You had said that I like to practice the craft. You know, that's probably a more flattering summary of how I approach things than I deserve. But like, I am what if you've ever seen that Trainspotter movie where there's the old guys in the anorak coats in Britain and they, they have these journals. So they're sitting here with a journal and they're writing the comings and goings of every train as it goes by. That's kind of how I am with startups. I keep a database of every startup where you would have made more than 100 times your money. And I try to create a time capsule of what it looked like at the seed round and what was true of the founders, what was true of the opportunity, what was the product at the time you had to decide. And so I just went down this crazy rabbit hole of discovery. And fortunately, a lot of these good founders are kind of my peeps. And so I was able to get their candid appraisals of what happened because it's the other hard part of this is that even the founders themselves often misremember how it really happened. You know, when, When things work out, everybody remembers things that they knew that they didn't really know at the time. And so that was the genesis of the book was, what's going on here? You know, why is it that Twitter couldn't decide who the CEO was, couldn't keep the site running, and didn't engage in any of these best practices that I could discern, and it still had a massive breakout success, but then others didn't that I would have voted as most likely to succeed. That's why I wrote the book was the summary of my findings about why I think breakthrough startups really happen as opposed to the conventional wisdom for how they happen.

The fail well, man, that was like, you know, oh, fail well, fail well. Like it became like a meme in and of itself. It's like a constant fail. So, you know, you're not the lucky fool. Or at least maybe I hope you came to the conclusion that you're not the lucky fool. So, what were some of the realizations? First, when is the book coming out?

So, the book comes out July 9th. And I'm working on this thing, you know, if you go to patternbreakers.com/m2jr, I have this thing called buy one, give one. And when I think about the people on this web event right now, I'm trying to start a movement where these ideas spread and where more founders learn about them. And so I thought, what better group of co-conspirators than the people on this webinar, right? And so if people are interested, they can go to patternbreakers.com/m2jr. And if you preorder one, I'll send you a signed copy for free. So that's what buy one, give one means. And my hope is that people will give one of the copies to one of their friends who they think has a legitimate chance at changing the future. So, so that's kind of my— so the book comes out July 9th. So we're pretty close. I've been working on it for 4 years. I've rewritten it 3 times. I've worked on it with a guy named Peter Ziebelman, who's a friend of mine at Stanford GSB. And so I think there's reason to believe that it might be better than, it might be okay, right? Like Steve Blank says, the best startup book of the last 10 years after Reddit. And so, you know, I tried to bring my A-game to this one.

That's awesome. So let's go back to, thank you for that. That's great. The link's in the chat. Put your questions in the Q&A, by the way. I see questions coming in the chat. But let's go back to some of these concepts that the frameworks don't explain success. So what are you starting to realize does explain success? What are some of the theories you're talking about?

So here's what I started to realize. And then there's a whole set of downstream implications. What I started to realize is that startup capitalism is a different kind of capitalism. And so corporate capitalism is more like how Buffett and Munger think about the world. So like, how do most people invest when they invest in a company or when they build a company? A company creates value by persistently compounding. And it has a set of competitive advantages that it harnesses to create barriers and to build that value. It has economies of scale, network effects, brands, supply chains. You know, it has a set of things. And so when you're, when you're buying a stock, you're basically betting that the company will more persistently compound at a greater rate than most other people think it will. And so that's, that's what corporations do. But what's interesting is that startups have none of those things. Startups don't have moats. They have nothing. They're startup. All they have is the founders and their idea. And so a startup capitalist creates value in a fundamentally different way. Startup capitalism is not about persistently compounding. It's about changing the subject. And so companies think of the future as an extension of the present. They forecast, they project forward from what's known. They project forward from what's happening. Great breakthrough startups by definition depend on the future being radically different. So what they do is they say, it's axiomatic that the future has to be radically different for me to succeed. Therefore, I have to build and contemplate radically different futures and work backwards from those futures, right? They backcast from different futures. And so what a great startup does is they propose a radically different future from, it can't be reconciled with the present, can't be compared with the present. And then after they come up with that radically different idea about a different future, they have to pull people to that future with them. They have to create movements to move people, early believers, to that future of their design. And so what we, what we need to understand when we're doing a startup is how do we avoid the comparison trap? How do we come up with something that forces a choice and not a comparison? If everybody's selling apples, I don't want to be a 10 times better apple. I want to show up with the world's first banana. And anybody who values the advantage of bananas, I'm the only guy that's got them. And so the book really talks about what are the forces. If companies have forces that they harness to build moats and extend their moats, what forces does a founder have at their disposal to change the subject? How does the, you know, business is never a fair fight. The only question is who's going to fight unfair? And the default is that the status quo fights unfair. How can we create the conditions where the founders fight unfair, where the startup capitalist has the unfair advantage? So that's really what the book is about, is about disruption through the eyes of the attacker rather than the big company that's getting disrupted. All right.

I want to— you said so many awesome things. Was that awesome? Right? All right, let's dive into— there's a problem with what you said, which is a lot of VCs are evaluating you with like the old school metrics. They're like, oh, you know, your old school metrics aren't very good. And you're like, well, I'm trying to reinvent the future. And they're like, uh-huh. So, you know, I mean, what do you do as a VC not to get stuck in that trap? And what do you do as a founder to try and tell people, hey, I'm reinventing the narrative here, I'm making something new? How do you succeed?

Yeah, so there's a lot we could say about that, but to answer your question directly, like, what I've found is that Early startup movements are animated by belief. And so when, when you have a great startup idea that's a breakthrough, most people should not like it. And the reason is that human beings are conditioned to like things. So if everybody likes your idea, it's too much like what they already know, which means it's too much of an extension of the present. Only ideas that are radically different, that hit different, can change the future. And so when confronted with a radically different idea, it's unsettling to most. Most people won't like it. A small fraction though of people, if the idea is valid, if the future is valid, will say, oh my God, where have you been all my life? And so one thing I've learned is that a great startup situation has founders, early employees, early customers and partners, early venture capitalists, who all believe in the same crazy secret about the future. And so what I say to founders is, you don't have time to waste on people who aren't ready to believe yet. You're not gonna convince them. You're not gonna change their mind. And so what happens a lot of times is founders get bad advice. They get advice from everybody they talk to. And most of the people that they talk to are conventional thinkers who aren't prepared to believe their crazy belief. And so they say, well, you know, you should add a slide about X because you didn't answer X. You know, so like, let's say you're Brian Chesky. Hey, I'm Airbnb. I let you rent an extra room in your house. One advisor says, no, VCs like marketplaces. You should say we're a marketplace for unused residential real estate. Well, I don't know what the hell that is, right? But like, but they'll put that on a slide and then they'll pitch somebody else or they'll show somebody else the pitch and then they'll say, well, you need to add this. You need to do cohort analysis. This you need to. You need to add this buzzword over here. You need to put some AI over there. You need to talk about how you're doing some things offshore, whatever it is, whatever nonsense, right? And what you end up with is what I like to call a Franken-deck. You know, you have this deck with like 30 slides that are trying to anticipate every possible objection. And I'm sympathetic to how it happens. Like it's kind of unfair to the founders if you ask me, whereas like What I encourage people to consider is, if you have a great startup idea, you have a non-consensus and right idea about the future. And the goal is to find common co-conspirators who believe what you believe and not waste your time with the other people. They'll come around later, but we don't have time to waste ergs of energy on non-believers. And so what I'm trying to do if I'm a startup founder is I'm trying to be very clear about what my advantage is. That advantage needs to be extraordinarily empowering to a specific set of people. And then I need to spend my time with those people and only those people who value my advantage. And if I do that successfully, I don't need a long pitch because people will be magnetized to believe. In fact, the great tragedy would be for me to pitch a Franken-deck to those people so that they never had the opportunity to understand my insight. About the future. And so that's probably a long-winded answer to your question, Adeo. But like, my view is that if your startup idea is valid, most people won't like it. A subset of people will be passionately in love with it. And you only have ergs of energy to devote to those people. And that all of your pitch and all of your energy and all of your time investment should be targeted towards those people. And if None of those people exist in the entire world. Our insight's either wrong or we're not doing a good job describing our insight. One of those two things has to be true, right? So that's kind of how I'm thinking about it. And Adão, I don't know if your sound is on or if you don't know.

No, my sound's probably off.

I said, man, well done.

But okay, so I'm going to dive a little deeper in these things and I want to unpack some some other realization. So I agree with you, and but a lot of founders get in this trap of building like incremental businesses, not new businesses, right?

Right.

And they get maybe a little bit of traction. And, and so I want to also then talk about how you find the believers, but let's just start with the founder. I built an incremental business, I've got a little bit of traction but not enough traction. I may need to pivot to something, right, to get that breakaway success. And maybe tell me how I can think about it. So I'm stuck, I don't have the believers, I got a little bit of traction. How do I need to pivot and how do I pivot?

So, so, and, and my views on this might be a little bit extreme, right? But like, basically I believe that, um, when you're a startup founder You should only pursue things that you think have breakthrough potential. And I believe that the reason that that's true is you only have to be right once if you do that. You only have to be right once ever, right? Like Mark Cuban was only right once with broadcast.com and it made him a billionaire, right? And like, I don't know how good he would be as a startup founder, but like he was only right once, right? And like all the founders that are famous, for the most part have only been right once, but you want to be spectacularly right when you're right, right? So, so what I look for when I, when I work with founders, it's not my role to have ideas, right? But what I think I can help founders do is stress test their ideas. So I like to say that founders that change the future have to do two things. Their ideas have to embody thinking different. And, you know, Steve Jobs used to say think different, but, but like what I spent a lot of time in the book talking about is How specifically do you do that, right? And then the founders have to also act different because in order to move people to a different future, that's a disagreeable act. And so you have to master storytelling, you have to create a movement, you have to be disagreeable when the status quo tries to prevent you from achieving the mission. But like if you go back to the idea, there's really 3 things that I look for. And, you know, we can drill down on if we want to. The first is what is the inflection? An inflection is an external change event, something new that creates conditions of radical empowerment to change the future. Inflections happen outside of the startup. They happen, they're all around us all the time. And so like with Lyft, the inflection was the iPhone 4S shipped with a GPS locator chip. And so because of that, now all of a sudden, for the first time, there was a turning point in empowerment. For the first time, you could use an algorithm to locate someone within a meter. Before the iPhone 4S, you couldn't have done that. You could have been right that ridesharing was the future, but you wouldn't have been able to implement a system that embodied the empowerment, right? So the inflection is the first thing. And the second thing is the insight. This is where the creativity of the founder comes to play. And so An insight is an understanding, a non-obvious truth about the future that harnesses inflections and is non-consensus and right. And so like with Lyft, the insight was, oh, that means we could do Airbnb for cars. And the non-consensus part of it was, are people really going to want to get in a stranger's car? That seems kind of crazy. So at the time, A, it was illegal, and B, it seemed kind of crazy that you'd get in a stranger's car. And so now Anne and I had foolishly passed on a startup called Airbed and Breakfast with Brian Chesky because we thought people wouldn't be crazy enough to stay in a stranger's house. We were proven tragically wrong. And so we were, you know, by experience and our own stupidity, we were open to the possibility that somebody might get in a stranger's car. And so fortunately, we believed what the founders believed. But that's— but, and then the third part about an insight that I think is really important is, I like to ask, is this from the future? And so like, one of the things I've found is the great startup ideas, you don't try to think of a startup. And the reason is that if you try to think of a startup, you will, you will ground yourself in a footing of the present. You'll try to analyze current markets for current pain with current customers that are unserved. And so like Marc Andreessen, when he did the Mosaic browser, he wasn't worried about the market for browsers. In fact, he didn't know anything about business. He was tinkering with the new technologies and standards of the internet. And he was in a supercomputer lab at the University of Illinois making minimum wage. Everybody who was experienced in business thought the digital highway would come from the government or from Time Warner or from the telcos or from Microsoft Network or AOL. Mark didn't know enough to know that that wasn't true. And so he would, you know, the internet had only been recently even legal for business to use. You know, it had only been used by the government and academia. And so Mark was living in a time machine. And what we find over and over again is that insights come from living in the future. William Gibson, the cyberpunk author, was right. The future is already here. It's just not evenly distributed. And so most people have the wrong idea of what vision is. They think vision is I've got better binoculars than you have and I can see farther. But what I discovered as I studied this more and more is that great insights come from tinkering with what's new and understanding what's new about it viscerally. And understanding the limits of its empowerment and then building what's missing in the future. So the best way to come up with insights is to live in the future and build what's missing in the future. And when you do that, your intuition about what to build is far more likely to be right. So like Andreessen wasn't caring about the market for internet browsers. He was building the thing he needed to make the internet useful for him. And so, you know, Wozniak, when he built the Apple computer, computer was building the computer that he himself wished he could have in this world to program. And so what I've noticed time and again is what you want, you know, we talk about get out of the building, we also want to get out of the present. And we want to get out of the present. And it's like the reason I called the book Pattern Breakers is great founders break the pattern, they break the pattern of what we're used to, they impose a new pattern. And it's by interacting with the new technologies and the new capabilities that founders discover firsthand the different ways of thinking, feeling, and acting that this technology enables. They discover firsthand the opportunity to break the pattern. They discover firsthand the way the new pattern will emerge in their, you know, successful interaction with what's new. And so that's where, that's where the great startup ideas come from. And so I get pitched all the time, and this may resonate with you and some of the founders and VCs on this call, somebody will say something to me like, I think mental health is a crisis. I'll say, I agree. I want to do a mental health app. I'll say, that sounds great. Why is your app from the future? And they'll say, well, in the future, somebody has to solve mental health. I'm like, I'm not interested in your ideas about the future. I'm not interested in your opinions about the future. If you're not living in the future, you're not qualified to have an opinion about the future. Future. And so like, what I, what I try to encourage people to think about is in what way are they living in the future for real? Uh, because, uh, I find that that is a massive cheat code for getting great startup ideas. And so then circling back, what I try to do within the book is I try to say to a founder, it's not my role to have an idea, but I can help you stress test your idea. I can ask you questions about your inflection I can ask, what's the specific new thing? What's the specific form of empowerment? Who does it empower? How empowering is it? What are the conditions that that empowerment might happen or not happen? What is your insight? How does it harness inflections? What's non-consensus about it? Why are you right? Why is the president wrong? Those types of things. And like, by asking those penetrating questions, we can start to understand if we're pursuing a future that embodies enough power to make it worth pursuing.

So I want to go back. You brought up 3 things: the inflections in the market, the insight, and what was the third?

Was it— and then is this from the future? My colloquialism for it is founder-future fit. Uh, okay, okay.

So founder-future fit, because you talk— I thought that was part of the insight.

Yeah, yeah.

Okay, so you're saying that that's really Oh, I, uh, all right, so I— okay, founder future fit's a good one to dive into, but I, I want to, uh, let's take a moment on that one, uh, because like I think this is— that's also useful for founders and for investors. And you brought up you can ask these penetrating questions, but what are some founder future fit the hallmarks or telltale signs, or, you know, they're not playing with the technology enough? What are some things that you can just—

So this was one of the most humbling lessons that I've learned over and over again. So like, I'll give you an example. Like, I was never pitched Zoom, but Zoom started out as this thing called SaaSpy, and it was meant to be a poor man's consumer video chat like Skype. And if you'd evaluated SaaSbee for what it is, you probably would have passed on it. And it turns out less than 9 months after he raised his seed round from friends and family because he couldn't raise professional money yet, he pivots it to Zoom and focuses on business. Okay, now let's look at it through the founder future fit lens. Eric Yuan had been at Cisco and on the WebEx product for almost a decade. And he understood what was wrong with the technology, what was new about it. You know, he lived, he was immersed in that. And so the mistake I've made is I'll ask the founder a bunch of questions to see how far they've gone down the idea maze with their current startup idea. But what I now realize is like a better metaphor is like Eric Yuan in that future was kind of like Patrick Mahomes. And I don't know what play Patrick Mahomes is going to run next, but like as a 49er fan, when I watch him in the Super Bowl, I'm like, oh crap, it's Mahomes again. What's he going to do next? Right? And so Eric had strong founder-future fit. He had lived the problem. He didn't have to think from the outset about where to go and how to pivot and how to juke and jive. Because he'd thought about the problem all the time for 10 years. And so there's this authenticity. So like Justin Con, right? When he started Justin TV, it was the dumbest idea I'd ever heard, right? We're sitting there in a coffee shop. He says, I'm gonna 24/7 live cast my life. And he's got a camera on his baseball cap and he's pointing it at me and I'm on his screen. And I'm like, Justin, this isn't even reality TV. The way reality TV works is you film somebody for a week and you edit it down Edit it down to 20 minutes. Nobody wants to watch you all the time. That's the dumbest. It's not even what you're doing isn't even reality TV. So he's like, you know, you're supposed to be an angel investor. Why are you crapping all over my idea? I was like, because it's a terrible idea. But like, then I looked at the technology that was in his backpack and I noticed that he'd sold his prior company on eBay. And what I realize now that I didn't see then, thank God I wrote him a check, but like, he had founder future fit. Justin Khan wanted to be an influencer before there was such a term. And, you know, if you're trying to start Okta or you're trying to start Snowflake and you've got a family and kids, you're not going to livestream your life 24/7, right? That's not founder future fit. Like, you're not going to see Mike Spicer livestreaming his life 24/7, even though he's a great founder. But Justin Khan was the perfect guy to try that. And so whereas like Kassar Younis at Applied Intuition, he's selling gigantic contracts for autonomous vehicle simulation to the car companies, right? He's across the table from the CEO of the biggest car companies in the world. Like he better have a track record, right? And it's no accident that he was at Google working with Google Maps and this co-founder was working at Waymo and they grew up in Detroit. And, you know, Caster went to General Motors Institute and worked at GM for many years. And so he was from central casting to solve that problem. And so, like, what I find is that it's useful to ask the following question, independent of what the product is right now, can I imagine anybody other than this person being the most authentically matched to this future in the world? And what I find is when that's true about that person, there's a lot of ways that they can surprise you on the upside. There's a lot of unknown stuff about the future where you shouldn't have false precision about it. Instead, you should take a leap, give Mahomes the ball and wait to be amazed, right? And so that's kind of one of the important things that I learned. And like part of why great founders come up with these great insights is they're such an authentic match to the future that they're pursuing, that they notice things that other people don't notice. And they attract believers more effectively than other people could because the believers co-create the future with them because of their authenticity. And they can smell it. They can see the authenticity.

Okay. So, great, by the way. We didn't talk about how do you pivot. You talked about like, what you do, uh, like with the inflection, the insight. But like, so I, again, I'm this founder, I'm in the market, traction, like, what do I do? Like, okay, so I'm not there yet, and like, I, I kind of realize that, but I'm not sure how or what to do.

Like, okay, so if you, if let's say you're, you're doing a startup and it's kind of going meh or even badly, right? What do you do? One of three things is wrong. Either your insight is wrong, like you might just be wrong about the future. And I would assert that if you're wrong about the future, you should stop. Like, because the most valuable thing you have in this world is your time. And, you know, I don't worry about failure in the traditional sense. For me, the only way a founder can really fail is if they're still pursuing something they wish they didn't have to pursue. You know, and I see this happen a lot. I see founders no longer doing it out of passion. They're doing it out of obligation. They have employees, they have investors. They're now committed to something that if they knew, if they could have it over again, they wouldn't have done this idea. So I think if you don't believe your insight anymore, you're better off stopping. But let's say you do believe your insight, or let's say that you think that it may be true, then there's two other things that could be wrong. The first thing that could be wrong is your implementation of the insight. So like the guys at Okta, when they started out, they weren't doing identity management, they were doing problem resolution. They thought that cloud management was gonna be hard. Todd McKinnon had been VP of engineering at Salesforce, perfect future founder fit, right, for this idea. They went to all their customers at Salesforce and said, we wanna do problem resolution for the cloud. And they all said, eh, you know, that's okay, but not one of our top 5 priorities. And so Todd had the insight to say, what is your top priority? Identity management, total pain in the ass, you know, doing it across cloud apps, major hassle. So Todd says, "Hey, I'll be back in 2 weeks." Then he shows him a demo for cloud identity management. So in that case, Todd had the right insight, he was talking to the right customers, but he had the wrong implementation of the insight. So that can happen. Other times you have the right insight and you have the right implementation, but you're talking to the wrong people. And so like, for example, if Todd had been talking to on-prem customers and they said, hey, I want you to integrate cloud with on-prem, they would've given him bad feedback about what his idea should be. And so whenever you're pivoting, assuming that you wanna pivot and then you're not gonna stop, you wanna say, do I have the right implementation? Am I talking to the right people? And what you're trying to do, to me, the definition of product market fit is, What can we uniquely do that people are desperate for? And if we have an insight, we have uniqueness. So now we have to navigate our insight to the desperate by having the right implementation for the right desperate people. And that's, to me, that is what the art and science of pivoting really is. It's pivoting your insight to the desperate, right? The reason pivot is a good metaphor, it's like basketball. When you pivot in basketball, You hold your pivot foot on the ground and move your body around your pivot foot. In this case, your pivot foot is your insight. And as you move your body, you're moving your body in the direction of the right people with the right implementation when you pivot.

Okay, that's awesome. Let's talk about the other side for a minute and then we'll take questions from the audience. So I'm a VC and I see someone come in It seems like a harebrained idea. Justin.tv is an example. And like, how— and I want to apply my metrics, but it won't work because you just said, because this is an innovative new company in a new field. How does a VC get out of there, like, get into this mindset to find these changemakers that are actually like Yeah.

And you know what, Adeo, I would like to say I'm, you know, if I'm better than most at it, it's still like the land of the blind, the one-eyed man is king kind of thing, right? Like, so, but like, but there's a couple of things that we've done. So what I started to realize is that when I stress test an idea, when I ask, does it embody inflections? What is the fundamental insight? Is there founder-future fit? I take a different lens on the opportunity. Like, let's take Google, for example. If you'd said, oh, Google's a search engine, there's a bajillion search engines, you wouldn't have had an open mind to the fact that Google had a unique insight. All the other search engines had done, you know, algorithmic word matching. Google did this PageRank thing where you had the list of citations. So, so like Google did have a unique insight. And if you, if you were looking at it through the lens of insights, you would have seen that Google was unique. You would have seen that it was a breakthrough. If you look at it through the normal lens of, oh, this is one of several of the same product, you wouldn't have had the insight. So like what I've learned is that when I apply what I call inflection theory, when I look at inflections and insights and founder-future fit, it lets me do two things. It lets me discard ideas that sound plausibly good, but that aren't that good because they can't lead to a breakthrough. That's the first problem. So a lot of ideas sound good on the surface because the founder studied a big market, found an unserved customer, built a product for that unserved customer. But the problem is that in doing that, they buy into a context, which is the current rules of the market. So by definition, they've limited their upside because they're playing by the incumbent's rules, no matter how well they play. So you want to eliminate ideas that sound plausibly good that don't have breakthrough potential. But then similarly, you wanna protect the ideas like Justin.tv. You wanna be open to the possibility that this doesn't have to be the final product, but that it embodies powerful forces underneath the product that make the opportunity worth pursuing. I don't have to know what the future will hold to make a bet on a founder and their ability to pursue a worthy future, right? And so that's what I need to do as the, I need to let go of my attachment to knowing how it's going to happen or how the dots are going to forward connect. I just need to hand the ball to Mahomes, right? I need to understand, is this guy Patrick Mahomes or is this gal Patrick Mahomes? Is this, you know, is it the, you know, Caitlin Clark? Is this person just give them the ball, wait to be amazed? But I have to understand that about the person. Founders, there's no such thing as an absolutely perfect founder. There's a set of traits that are common, you know, resilience, independent thinking, the willingness to be unconventional, all those types of things, passion for users. But there's a set of specific traits that have to do with founder future fit and their authenticity to the opportunity. You know, Justin Kan succeeded with Justin.tv. He failed with Atrium. And Atrium sounded like a good idea, you know, legal tech. Justin was an accomplished founder. Why wouldn't you invest in that? Justin didn't care about lawyers. He had no passion for it whatsoever. And so he had no insight that was unique about that future. You know, he was doing it because he wanted to be a high-status founder, not because he was passionate about the legal field.

Yeah, that's a very interesting point. I know the Justin.tv story well. So there's a lot of questions in the chat.

We do it? Should we go for it?

Yeah, I'm looking at them, but I want to almost get some guidance from you. So there's entrepreneur questions, there are VC questions, there are LP questions. Do you have, uh, let me start with one that's sort of broad.

Yeah.

And tell me where you want to go after that. But Robert's asking, how far in the future, how many years, for example, Do you think is best to focus on when evaluating these things? It's an interesting question given everything you said and the uncertainty that—

I love this question. So, and by the way, this is why I'm kind of persnickety about my terms sometimes. So you'll notice I use the word inflection and not trend. So why is that? An inflection is a turning point. Like in math, an inflection is like when the derivative of the curve changes, right? And so this is the thing that was vexing me as well. Like timing is so important in these things, right? Like timing may be the hardest risk factor to control or even understand. And so what I realized that the power of inflections is that it's a cheat code for addressing the why now. Because like, let's take the example with the iPhone 4S and a GPS locator chip. Before that, before the presence of that empowerment, it was too early to do ridesharing. But if you waited too long after the iPhone 4S, others would have done the idea, you would have been too late. And so the reason that the inflection stress test is powerful is it helps you assess whether you've got the timing element of this thing right. You know, you're, you're trying to, uh, you're trying to implement a product that embodies a specific form of empowerment for specific people in a specific window of time. And that's what the inflection is. And the inflection lets you laser beam focus on, is this really a turning point, right? Is it, you know, cameras are getting better every year, but Instagram came out at a time, at a specific time, when the phone camera was just good enough that people would use it as their primary camera. You know, you could have been right about Instagram with the iPhone 2, but it wouldn't have mattered because people would, it wouldn't have been empowering enough for people to wanna use filters and share their photos and airbrush their pictures and stuff. And so that's how I would address that question is like, you wanna use the inflection stress test so that you yourself can understand the timing and whether it's well-timed. You know, you want to also understand who's empowered by that inflection. So you spend your time with the right people who are ready to move with you in your movement rather than spending time with people who it's too far over the horizon for them to move with you.

Yeah. And I mean, honestly, the filters were needed with Instagram because the photos often sucked. The cameras weren't good enough.

Right.

Addie's asking another question I like. So again, if there's an area you wanna go down, let me know. Can you share an epiphany when you look back, either for investors or for founders that you had relating to the power law when maybe the power law became real for you?

Yeah, so this comes, I guess, a little bit with experience, but like what I've found is that in every fund that we've had, the single best exit was larger than all the other exits in that fund combined. And so, you know, and like, so for fun too, we've had, we had some good ones, right? We had Lyft, we had Okta, you know, I think that Ignite's going to do well, but still Anne's investment in Lyft, you know, Anne invested $750,000 at a $5.5 million post-money valuation and made 200 times her money. That one investment, you know, in a $33 million fund was pretty material, right? And so I think she made 200x or something like that. So like, as good as Okta was, and it was great, thank God we invested in it, all of, you know, more than 50% of Fund II's goodness came because Ann wrote that one check and made that one decision. That's been true of every fund. In Fund I, DemandForce made more money for us than all the other investments combined. In fact, I don't think that we've ever had a single fund where that did not happen. And so why does that matter? Whenever I write a single check, I need to ask myself, under what conditions might this company, this company alone, this check alone, return multiple times the fund by itself. Because if there's no set of circumstances where that could ever happen, there's an opportunity cost to that money. I'm investing that money for purposes that are not worthy of the investment. I should be investing that money in things that can create that kind of return if they work. And so, more specifically, when I make an investment on my first check, I want 15%, well, I want 9% of my investments to get at least 20x on the first check. And I want about 5% to 6% of my investments to get 100x on the first check. And if I can do that, I'll have a 10x fund. But like all, what matters is not your winning percentage. What matters is that in the 15% case that you win, that you win big. Uh, you have to, you have to get paid for the risk you take, and so you have to make investments in things that when they work, work spectacularly.

Oh, oh, okay. I, now I have a fault, so I want to get 5 questions. We got like 5-ish minutes, but I want to double down on one of those, the thing you just said. So, but you don't really have a lot of data. In fact, this was actually one of the questions, like how do you But the founder was asking, how do you make an investment in a startup when they don't have a lot of traction in the present? And given the fact that you just said you want to get these big multiples, you know, it's very hard to evaluate, is this going to be really, really big if you don't have any data? So I'd love to hear your view on that from both sides. How do you make that decision as an investor? And as if you're a founder, you don't have a lot of traction, how do you get an investor to take you seriously?

Yeah, so, you know, I look for those powers, right? Like I say, all that I'm really betting on and all that I can bet on is the degree to which I believe that this idea and this founder can radically change the future. So it's like in physics, there's potential energy and mechanical energy. I'm betting on potential energy. And I, I, you know, a lot of investors don't do that, right? Probably. That's probably true. But, you know, it's not my place to judge how they do stuff or, you know, it's like, it's hard enough for me to do my job well. So like, you know, but that's as a seed investor. I think that's what my job is. My job is to find high potential, radical, change the future ideas and founders who can pull them off. Who have authenticity in that future and have the ability, persuasive skills, to create a movement that moves true believers to that different future. I don't know how exactly it'll happen any more than I know what Patrick Mahomes is going to do on his next play. I just know he's a damn good quarterback and he knows the right playbook and the right situations to improvise to make things happen on the playing field. And so that's what I'm looking for is Am I playing a game where a startup isn't fighting fair, where if things go our way, we're gonna change the rules, we're gonna force people to react to us, not the other way around. And most of the time I'm gonna be wrong, but I don't care about that as much as I care about how meaningful will it be if I'm right? How meaningful will it be if the founder's right? Because You only have to be right once, right? And so like, what matters is the magnitude of how right you are, not the probabilities that you're right. You know, it's, it's, it's about not the probability of success. It's about the expected value of success and expected value. It multiplies the probability times the upside if it works. And so what I want is to pursue high-risk underpriced futures. That most people won't pursue because they're fixated more on the probability of success than they are on the magnitude of the success if it works.

Yeah, that's— I did an interview with Roloff. He called that the pre-mortem, like what happens if this actually goes right? How big can it be? Um, lots of questions about the VC side. I got— I'd like to get 3 questions if we can, and then just another plug for the book, but can you tell us the story of your first fundraise? How did you convince the LPs to come in with your operator experience?

Yeah, so it was a very different time. And so my first fund, I was like, look, I'm not sure I know what I'm doing. And, you know, I'd made some money for people before as a founder. And so I said, what's an amount of money where if you lost it all with me, we'd still have a good relationship. So Austin Ventures said, hey, you know, how about $10 million? And I said, great. So Fund 1 is going to be $10 million plus whatever else I can scare up. And then I went to just some other friends and said, hey, you know, you'd said you were interested in investing. Did you mean that? If so, I'm raising a fund. Right around that time, I was introduced to a guy named Phil Horsley at Horsley Bridge. And I started to get to know him. And then one day he's like, I just read in the paper that you closed a fund. Why didn't you pitch me? And I was like, look, I just don't know you well enough. And I'm not sure I'm qualified to raise money from Horseland Bridge. I'm not even sure I'm going to be a VC. I'm going to try this out and see what happens. And, you know, I had some pretty good luck in my early days of it. But what's interesting is I tried to apply my own advice to how I pitched the VC funds. I never looked at it like I was selling them or that I had to, anticipate their objections. I said, look, you know, okay, here's my insight. There's angels, they don't have much money. There's VCs, and at the time they only want to invest $5 million and more. And there's this new thing happening called Lean Startups, and $500,000 is the new $5 million. And so somebody could create a fund that's institutional that writes $500,000 to $1 million checks. And I think I'm well suited to do that because I was a founder and I know a bunch of VCs and understand how it But if you don't believe that, then I can give you the rest of your time back because nothing else that I'm about to say is going to make any sense to you. And so I like to go for the no early. I like to say, here's what I believe that's not obvious. You might not agree with me. If you don't agree with me, I'm not going to try to sell you. I'm not going to try to convince you that you're wrong. We either believe similarly or we don't. So like startups are animated not by utility, they're animated by belief. And early believers along with the founder co-create the future together by animating those same beliefs and making them real. And so that's how I raised all of my funds actually. I always tried to, and I would never meet a new LP while I was fundraising. I would only meet new LPs when my fund was closed because I didn't want to meet them under the pressure of fundraising. I only wanted to meet LPs when I could have a discussion with them and learn from them about how they see the world. And if we see the world differently, two things are true. One of two things is true. They either know something I don't know, in which case that's valuable, they taught me something, or they're just wrong, in which case I don't want them as an LP because I don't want them always second-guessing my strategy. So like, I want to authentically improve my strategy all the time, but I also want to implement the strategy with authenticity. And so I want to work with LPs who believe in my strategy and believe in what I'm doing. And if they don't believe in what I'm doing, that's okay. It's a big world. There's lots of LPs. And, but, but like, it's the same as getting VCs to invest, right? Like the mistake that a lot of people make, I think, is they think of it as a sales cycle, but it's really not. It's a movement. You know, when you raise a fund and you're a fund manager, you're creating a movement around your insight and you're trying to find your first true believers who share that insight with you, who want to be part of co-creating that future with you. And so I looked at Phil Horsley as a partner in creating a different future. Phil Horsley thought that Horsley Bridge could be a leader in establishing seed as a category. And so did Dave Swensen at Yale. And, you know, that was how I looked at them rather than what do I have to say to convince them, right?

That, I mean, I don't know if we could do any better, guys. Was that amazing or what? Oh my God, like, this was— I just have to say that this was one of my favorite talks in a long time. You're building a movement. You gotta find believers, right? You talked about founder-future fit, great concept there. What's your insight in the market? What's the inflection in the market? All these things are some powerful new ideas that both entrepreneurs need to understand and investors need to hear. And I really hope that this talk will go on and resonate with everyone here on the investment side, everyone here on the LP side, everyone here on the entrepreneur side, because you're exactly right. You got to start— and, and, and I, I'm a firm believer we have to start funding a future that we want to see, right? Not an extension of the current, which is not leading us in a good place. So why don't we close on a final book, uh, mention here. So you're going to be giving away a signed copy of your book for everyone that, that buys a book with this special link. I put the link in the chat, but I'll put it again if you want to say it so that everyone—

it's just patternbreakers.com/m2jr. And, you know, for what it's worth, whether people buy the book or not, a lot of you in this talk who were kind enough to listen this long are entrepreneurs. And the thing I want to emphasize, just how grateful I am to you guys for doing it, because VCs are kind of in the cheap seats, you know. I can say whatever I want to say. I can pontificate however I want to pontificate. But like, I'm very clear on the fact that I'm riding shotgun at best. It's these founders who change the future. It's the founders who dare to be non-consensus and right, get told that they're stupid, get told that their idea is never going to work, but still they find other crazy people like them to go change the future. And so whoever is on this Zoom, or whoever's on this webinar who's like trying to do that right now, I salute you. You may succeed, you may not succeed, but I salute you for trying, because only people who are different are ever going to make a difference. And it's like, we need more people like that doing this. And so hats off to you, and Godspeed, you know, in whatever you're pursuing.

Thank you so much, Mike. Man, you rock. I, I, you know, I got goosebumps. I think everyone— the hearts coming non-stop say it all. You know, we're, we got a lot of work to do and we need more investors like you. Congrats on all your success and thank you for these kind words. We're all like, it's a lot of work to be a founder. I'm a founder, I'm also investor, so I'm on both sides of the table. Thank you so much. Thank you everyone for coming.

This was amazing. This was fun. And I think I've got to bounce. I'm getting some static here on my phone.

Me too. We love you, man. This was awesome. Have a great one. Thanks everyone. Wow, what amazing. Thank you guys.

Thanks, Adel. Great seeing you guys.

Bye.