A few years ago, I wrote about how we at Birchmere strive to be both contrarian and correct as venture investors. That terminology comes from a popular quote (loosely attributed to Howard Marks) that we use in our LP fundraising decks.
“To be a great investor you need to be contrarian and right.”
When we talk to potential investors in our fund, we describe our track record of being correct and the contrarian thinking that drove it. In Zero to One, Peter Thiel describes an interview question that he uses to test a candidate’s ability to be contrarian:
“Tell me something that’s true, that almost nobody agrees with you on.”
I use this same question, though slightly adapted for my purposes. I ask entrepreneurs to tell me about the core beliefs driving their startup that they believe to be both contrarian and correct..
In my last post, I said that great entrepreneurs make the world the way it ought to be. The first step in that process is usually a key insight, typically contrarian, about how the world should be different. If the idea isn’t contrarian, why doesn’t it already exist? If you tell your friend your great startup idea and she immediately sees the value, you’re too late.
Sometimes an entrepreneur will choose to enter a market already crowded with other companies attempting a similar strategy and try to “out execute” everyone else. Even in this case, the successful entrepreneur typically has unique beliefs around approaching or growing the market that distinguishes them.
The entrepreneur’s case for why they believe their contrarian insight is correct is a critical part of our investment thesis.
It should be obvious that no one has a crystal ball. Sometimes brilliant entrepreneurs end up being contrarian and wrong. In those cases, we need to work with the entrepreneur to create the best outcome possible. Managed properly, our final conversation with the entrepreneur around that business will be “Let me know what your next startup idea is.” This is true even if (as often happens) the investment returns less than the capital invested.
However, when an entrepreneur is both contrarian AND correct, the outcome is magical. As the originally contrarian insight becomes obvious to more people, the startup is perfectly positioned to satisfy the entrepreneur’s dreams of both social impact and financial returns. As a venture fund, it is our honor to get to be part of those journeys and later include them in our LP fundraising decks.
This is part of a series of Medium essays I’m doing on 5 key seed investment questions.
