The Problem
Take the best of the best: A16z. Any founder would be thrilled to have them on their cap table. But the reality is that A16z writes off 67% of their founders.
News flash: the startup ecosystem is structurally unfriendly to founders.
Venture is weird.
In what other field could you imagine being “wrong” 70% of the time and still be a hero?
We get the math. The lions of Sand Hill Road aren’t crazy or evil. 100x results don’t happen that often. We have nothing but respect for those guys, but at the end of the day, we just didn’t want to be in that business.
When we got together as partners, our goal from the beginning was to work every angle to help our founders be successful. We’re willing to throw out the rulebook and set aside received wisdom.
Through shipping +100 products, 45+ exits, and as ex-founders ourselves, we have some ideas on how to make sure our portfolio cos beat the odds.
It comes down to reducing risk. We’ve zeroed in on some common and not so common ways to do that.
- We only pick founders we know we can help
- We unlock operational leverage to extend their runway
- We have a bias to exit
Only founders we can help
There are two parts to this. First, we are focused on the kinds of businesses our partners have operated. One of our core areas of focus is the future of work productivity in SaaS–building, refining, and scaling. We invest there and in a few other areas, we have deep expertise in.
A narrower thesis helps us make more informed investment decisions. We are less likely to get caught up in fads or buzzwords.
And, it also sets up the second and equally important imperative: We have to be able to convince a founder that we are worth listening to. Influence is earned, not bought. Our founders have to believe that we know what we are talking about, or we aren’t going to be confident that we can drive up their chances.
The founders we connect with see our value as collaborators and are more likely to benefit from our advice. When we stick to what we know, and founders know we are worth listening to, we can help them avoid many mistakes.
Operational leverage
We’ve watched too many founders burn through funding far too quickly before getting to product market fit (PMF). People often misdiagnose the ‘cause of death’ when it comes to startups.
A recent CB Insights study cited 12 reasons for startup death. But, behind most of them is one problem. Call it ‘running out of money’, ‘no market need’, ‘bad timing’, ‘poor product’, or a ‘pivot gone bad’. They all amount to one mistake: the team couldn’t afford to keep building and iterating. If you rolled those causes together, this explains over 75% of failures.
Bottom line: One way you greatly improve your chances of survival is by building your product cheaply enough to be able to have the resources to iterate until you reach PMF.
In experience leading, building and investing in hundreds of software companies, we see two product development models that are far less risky than others:
- A technical founder/team that also has the right skills to build the full-stack application. If this person or team has the right skills, and can forgo the salary they likely would command (for multiple years), then this is clearly a great option.
- A cheap no/low code validated MVP, then a quick transition to a flexible team of offshore expert devs that can build a scalable platform based on your validated solution–all under a competent technical co-founder.
The common theme: very low burn rate while you iterate toward PMF.
Door number one is great if you have a technical cofounder who can build your medium-term solution and can run on low cash comp (mostly equity) as long as it takes. You pop out of this condition quickly if:
- You need multiple skillsets to build your product–AI and full-stack and data science, etc.
- You don’t have a one-stop shop “builder” co-founder
Then there’s door number two.
With a validated idea, you greatly reduce risk. You don’t need to get to true PMF with a homemade MVP, but if you start building custom software before you get people to pay you for it, you’re at a disadvantage.
Our model kicks in here. We create operational leverage for our founders by:
- Speeding up product development with our expert teams: We lever up the founding tech team with our expert devs. These teams have built over 100 platforms.
- Aligning with equity: We earn equity by building–our skin in the game drives deep alignment.
- Lengthening runway: Our dev teams funded with equity use less cash and give you more at-bats.
This model works pre-seed to series A and beyond–especially when unlocking PMF requires a significant amount of code. It also works well when the founding team has deep technical skills but needs “non-core” functionality to unlock the opportunity.
Bias to exit
We want to put the cookies on a lower shelf for founders. You don’t have to build a unicorn to be a success in our model. We help you build the right-sized business for the market you go after. Just entertaining 9 and even 8-figure exit values makes us unusual.
We also do work to help you connect with corporate acquirers. Our strategy is to help you identify places your venture can fit in the tech firmament. By proactively cultivating life-changing but non-IPO exits, we help our portfolio companies beat the odds.
There is a lot more here we can’t share publicly, but Silicon Valley veterans can read between the lines.
Conclusion
The world is changing. The cost of creating world-changing companies is going down with AI, composable tech, and global development networks. A new approach is needed to give founders an unfair advantage. We’re building something opinionated. It isn’t for everyone.
But the right teams will see how to partner with us to build great companies. We’re excited to talk.
