Doing the Right Thing, and Doing it the Right Way
- Reflection on the 7th Anniversary of iFly.vc
iFly.vc was launched on September 16, 2016. Just a few days ago this week, we marked its seventh anniversary.
Today, we explore the story of an Antarctic expedition that took place over 110 years ago. This journey into the extremes of nature reveals distinctions between achieving success and succumbing to failure, drawing a parallel with the world of venture capital investment.
At the beginning of the 20th century, the South Pole remained one of the few spots on Earth that no human had set foot on. Between December 1911 and January 1912, Roald Amundsen (leading the Norwegian Antarctic expedition) and Robert Falcon Scott (leading the British Terra Nova expedition) competed against each other to be the first one to reach the South Pole.
Amundsen’s team reached the South Pole on the afternoon of December 14, 1911, and subsequently returned to their base camp at Framheim without any casualties. They won the race! However, Scott and his four companions managed to reach the South Pole only to find they were five weeks late, and, on the return journey, they all perished.
With the same objective, these two teams had entirely different outcomes. The starkly different fates of the two teams vying for the same prize are worth comparing. Thanks to the detailed journal entries by both teams, comparisons were made in various studies. Here I would like to share a brief summary, which Sky Lyu, one of our summer interns, helped prepare.
Pre-Expedition Training
Amundsen: Spent years preparing for the expedition, studying the successes and failures of previous polar expeditions. He also spent time with the Inuit people, learning their survival techniques, which greatly influenced his strategies.
Scott: While he did prepare for the expedition, some of his decisions, like relying on ponies and not making skiing mandatory, indicate gaps in his preparation.
Weather Conditions
Amundsen: No significant weather-related issues were reported.
Scott: Started the expedition 11 days behind Amundsen due to last-minute changes in preparation. Missed a better window of weather. Ran into severely prolonged low temperatures on the return to the Ross Ice Shelf. This affected their morale, speed, and access to depots.
Transportation
Amundsen: Recruited experienced skiers and had a champion skier as the front-runner. Used dogs, which were more cold-tolerant and could start earlier in the season. Dogs could eat seal and penguin meat found in Antarctica, reducing the need to transport food. Amundsen’s team also sacrificed weaker dogs to feed the other animals and the men, a strategy Scott found distasteful.
Scott: Had limited experience with skiing and did not make it compulsory for his team. He later regretted this, noting the advantages of skis. Believed that dogs had failed him in his previous expedition. He used ponies for a quarter of the journey and man-hauled the rest. Ponies were ill-suited for the journey, sinking into anything other than firm snow or ice. Ponies required food to be transported from the ship, increasing the load. Ponies also sweated badly and thus easily got killed by hypothermia. Scott even tried motor sleds, but they all failed due to mechanic faults.
Supply
Amundsen: Prepared 3 tons of supplies. His team actually gained weight during the expedition, indicating adequate nutrition. They had plenty of fuel and food, thanks to their efficient use of resources and the ability to supplement their diet with fresh meat from seals and penguins.
Scott: Prepared 1 ton of supplies. The team’s health deteriorated by the time they reached the pole. Their rations were deficient in vitamins B and C, leading to malnourishment. They also faced a fuel shortage due to leakage from stored fuel cans.
Clothing
Amundsen: Adopted the clothing style of the Inuit people, using layers of reindeer fur and windproof outer garments. This clothing was better suited for the conditions, providing both warmth and moisture-wicking properties.
Scott: Used traditional British polar clothing, which included woolen garments. These garments, while warm, retained moisture and did not provide adequate insulation in extremely cold conditions.
Route Marking and Depot Laying
Amundsen: Marked his route with flags and built cairns every three miles, ensuring easy navigation. He also took precautions to ensure that depots could be easily located.
Scott: Relied on less frequently laid out depots. His routes were marked by walls made at stops to protect the ponies, making route finding challenging.
Leadership and Team Dynamics
Amundsen: Adopted a more egalitarian approach. He worked alongside his team members, sharing the daily tasks and responsibilities. This fostered a sense of camaraderie and mutual respect, which was crucial for the team’s morale and success.
Scott: His leadership style was more hierarchical and formal. While he was respected by his team, there were instances of disagreements and tensions among the members, especially during the challenging return journey. Morale deteriorated quickly. Scott himself expressed anxiety and despair during his final days.
Outcome and Legacy
Amundsen: Reached the South Pole 34 days before Scott. Everyone returned safely to Norway. His success was a result of meticulous planning, adaptability, and learning from indigenous knowledge.
Scott: Lost five men, including himself, on the return journey from the pole. Despite the tragic outcome, Scott’s expedition provided valuable scientific data and his journals offered insights into the challenges faced by polar explorers.
Here the difference between success and failure is not only about the difference between accomplishing a mission and losing the accolade but also about the difference between life and death. As we can see from the above comparison, the Amundsen team did lots of “right things” and did them “the right way.”, but the Scott team did many “wrong things” which cumulatively led to their failure and death.
At the end of 2007, I joined the Wharton Leadership Venture and visited Antarctica with my classmates. It was not one of those fancy cruise trips, instead, we hiked and camped on the land. Physically it was so demanding that I lost 5 lbs within one week. While we were far away from the South Pole, the weather condition was already harsh enough to allow me to gain a deep appreciation for the immense challenges faced by early explorers.
Upon the 7th anniversary of iFly.vc., I reflected on the early explorer’s race to the South Pole and my own experience in Antarctica. In the start-up environment, every team wants to win. However, very few rise to the top while many fail along the way. I believe that start-up founders (including myself as founder of a start-up fund) can learn a great deal from the Amundsen and Scott Expeditions.
In order to win, a start-up team must do the right thing and do it right.
The past seven years have been a continuous entrepreneurial process for iFly.vc. In our investment practice, we must also do the right things and do them in the right way. This is reflected in investment strategies, deal sourcing, deal evaluation, portfolio management, and team growth, among many other aspects.
Investment strategies that work for other funds may not suit us. We must develop our own playbook, follow our own path, do what is right, and avoid what is not:
1. Stay cautious about the “next big thing”
The term “next big thing” has gained popularity recently, often serving as a helpful tool for fundraising. While fundraising is of importance for funds, we hold the belief that chasing the “next big thing” at its face value is not good for value investing. Excellent startups that raise funds by riding these trends tend to attain high valuations, which does not contribute to our goal of generating investment returns. Our mission is not to stack expensive company logos on a webpage. Even without the so-called “next big thing”, industries with pain points and entrepreneurial teams actively exploring innovative solutions deserve attention. If a suitable investment presents itself, it deserves thorough consideration.
2. No spray and pray
Currently, we invest millions of dollars in each company, and the total number of companies in each fund is limited. Given our limited time, energy, and resources, we refrain from using a scattershot investment approach of investing a little in many different areas. If we simply “sprinkle” investments everywhere, it would be difficult to have a deep understanding of each field before investing, and it would be impossible to inject enough energy and resources into each portfolio company for effective post-investment management and value-added services. With this type of strategy, even if some investments exit successfully, their impact on the overall return of the fund is limited.
3. Stay away from companies with high cash burn rate
Capital efficiency is crucial for both our fund and the portfolio companies we invest in. We prioritize whether a team has the ability to achieve sustainable growth for their company. Since we steer clear of trend-driven investments, we must refrain from counting on late-stage, large funds to provide support for companies riding these trends. A large number of successful companies have managed a delicate balance between growth rate and capital efficiency. For a start-up, such balance is more sustainable than relying solely on high cash burn.
4. Stay away from heavy R&D without sound productization
In our view, Silicon Valley’s technology innovation is often packaged as if a cool technology is destined to change the world. However, the fact is that no matter how amazing — “this” technology, “that” technology, or even “WTF” technology — if it cannot be productized, its value is limited. What we need to examine is the product value and competitive barriers formed by the technology. Moreover, while creating value, is the company capable of extracting a portion of that value?
There are many ways for start-ups to succeed. Their paths to success may not align with our investment strategy. We sincerely congratulate the teams and their investors. For ourselves, our resources and energy are limited, so we must focus on our strengths:
A. Maintain a global perspective, with a focus on North America
There are plenty of exciting investment opportunities in North America, which we want to focus on. Meanwhile, we are very interested in seeking knowledge from all around the world to enrich our investment thesis and strengthen our portfolio support. For example, China saw the rise of many incredibly successful start-ups out of a highly competitive environment. Whichever company rose to the top must have done a lot of right things and done them the right way. We find it quite helpful when we engage in dialogue with our colleagues in China, explore collaborative opportunities, and provide support to our portfolio companies in learning from their Chinese counterparts. Through our introductions, the CEOs of several portfolio companies have had the privilege of meeting and gaining insights from leading entrepreneurs within the same consumer sector in China, an experience that has proven highly beneficial.
B. Investment approach driven by evolving thesis with independent judgment
We maintain curiosity and a commitment to continuous learning in all venture opportunities related to people’s daily lives, including food, clothing, housing, transportation, entertainment, etc. across the entire cycle of life. Before investing in a startup, we thoroughly study the industry characteristics, market dynamics, combination of new technologies and products, and competitive landscape, and learn from both upstream and downstream companies in the industry. Currently, we have been continuously tracking the fields involved in the start-ups we have invested in for at least two to three years. The knowledge and network accumulated in this process also contribute to our ability to provide effective post-investment management and value-added services. In 2018, we reached a strong conviction in Weee!. The conviction was built upon our deep understanding of the grocery market, the difference between next-day scheduled delivery and fast/ultra-fast delivery, and the difference between the first-party model with vertical integration and the third-party model (i.e., brick-and-mortar retailer plus third-party delivery service). Even though Weee! was turned down by all other investors, iFly.vc followed the conviction and became the company’s sole investor of this particular round.
C. Product-market fit
The boundaries between Seed, Angel, Pre-A, and Series A rounds have become increasingly blurred. We consider investments at all of these stages. In terms of investment, we prefer startup teams that have already achieved a certain degree of “Product-Market Fit” through market validation. Even the most advanced prediction models have limited value if they cannot be translated into cost-effective products. While identifying promising aspects, we also aim to gain a better understanding of where we can provide effective support and why the company seeking financing is willing to accept our investment.
D. Portfolio support: help without causing trouble
We are committed to helping our portfolio companies. This includes supporting the recruitment of key hires, debating strategy, introducing to customers and business partners, and fundraising, among many other things. Every member of the iFly.vc team, including interns, is responsible for tasks related to specific portfolio companies. Our post-investment services particularly avoid merely giving advice in a nice board room. We prefer to roll up our sleeves and work together with the portfolio companies whenever they need it. At the same time, whenever we make a new investment, I tell founders that iFly.vc’s main job is not about being their cheerleader but a value-add partner. We are not shy from telling founders when we disagree with them and why (and accept that we might be wrong). We are committed to helping founders identify their blindspots, make the right decisions, and execute them correctly.
Since the fundraising started in 2016, we have encountered challenges at every stage of establishing a new fund. In order to do the right thing and do it right, we are firm believers in first principles thinking. There is no need to further simplify this message but what I have found is that it is definitely easier said than done. As for what is “right,” different entrepreneurs often have different views and conclusions within their own knowledge boundaries. The development of first principles thinking requires an open-mindedness and commitment to constant learning and recalibration of one’s knowledge framework.
Since becoming a founder by starting iFly.vc, I have gained a profound sense of motivation to continue to learn and grow. The importance of constant learning is shared among all the iFly.vc team members. I aspire to do my best to help each team member in maximizing their strengths.
As we celebrate the 7th anniversary of iFly.vc, I wanted to thank LPs for their trust, founders for the shared journey, iFly team members for their contribution, and all other collaborators for their support.
Onward!
