Breaking (Bad) Mantras

Exceptional investments == Taking risks AND Being right AND being contrarian

Investing in startups is quite different from other forms of investment. I’m not the first one to point this out and I won’t try to compete with Sarah Tavel (1) or Andy Rachleff (2) in explaining why VC is so weird. But in case you didn’t read their posts, this is the key argument:


To generate superior returns, you need to invest in very risky ventures. But it’s not enough to make the right bets — you must be right when other smart investors don’t “get it”.

In plain words, you must be right when everyone thinks you’re dumb — you’re wrong so often in VC … that you get used to that feeling!

To the founders in the room: do you care if investors feel dumb? 
Probably not!

But if you get the logic of a VC, you can better communicate the opportunity you are going after. You can help the VC navigate through the risks you face and get us as excited as you’re about your bright future!

On Taking Risks

I’ve heard quite often founders complaining that VCs don’t take enough risks. Actually, what’s quite unique about this job is the amount of risk you can take:

So, how do we choose which risks to take? Through “Pattern recognition” :)

Nice buzzword for our investors, right? 
Want the plain vanilla version of that?

We learn by trial and error.

We see “what works” and “what doesn’t”, and we try to avoid the same mistakes.

When Risks are Understood … Mantras are Born

Wait, how do we learn about what works and what doesn’t?

Well, first from our successful — or not that successful investments — and our “antiportfolio”.

But not only that, quite often, when a company does well, there are external signs like fundraising, acquisition talks, key hires, etc.

It also helps that the startup community is tight and investors and founders tweet, blog, brag or gossip about the success stories. Obviously there’s a lot of noise and the failures don’t spread so quickly. But even if the flow of information is not perfect, “what works” and “what doesn’t” tends to spread fast.

And what happens when this information gets repeated often enough? 
It becomes a “mantra”.

Do you want to see what I mean by mantra? 
Look for investors saying things like:

  • “I want to back serial entrepreneurs, their companies have lower risk”
  • “Enterprise software is not for young founders”
  • “There’s a bubble in xyz”
  • “Europe is not a good place for startups” ;-)

When Mantras are Broken … Breakouts are Born

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
— Mark Twain

Those mantras might exist for a reason. But even if they are true (which is already a big assumption!) they might not hold true forever.

Once in a while, founders break more than one of those mantras…

“At a time of mainframes, are you investing in inexperienced founders selling operating systems? Are you crazy?”
— Said somebody who didn’t invest in Microsoft

There are plenty like the previous:

  • Those PhD guys don’t make the cut for becoming founders — they are not driven and pragmatic enough, too theoretical…and you say they want to do something in search? 
    That category is already done! 
  • Selling books online? What a niche man!
    And if it works? Everybody will do it! 
  • So, you’re saying that you sell a CRM in the cloud with a subscription license?? No way CIOs are going to allow that… 
  • Another social network? 
    That’s dodgy, people sneaking into the lives of their friends…
  • Selling to Governments?? Life is too short for that!
    (Palantir. Well, in this case, investing in Peter Thiel is already a Mantra)
  • Who is crazy enough to jump into the car of a stranger? (Uber) 
    Or even crazier, sleep at a stranger’s house? (Airbnb)

When Breakouts are Successful … Sometimes, Trends are Born

Those previous companies became extraordinarily successful because they broke mantras.

They created enormous amounts of wealth and defined categories. But equally important, they changed how founders and investors perceived the world:

There was a shift in an important aspect of how the world was understood to work “until them” and “after them”. Changes in tech, customer behaviour, regulation or something else opened the door to a new set of opportunities.

Once this shift was understood, new companies emerged and investors had to re-write our “mantras”.

When Trends bring (1) Specialization and (2) Commoditization …

An investment thesis feels like a PhD … ;-) Source:

But sometimes, that change in paradigm is massive.

Then, those trends become mega-trends that can last decades. Think about desktop software, search and advertising, social networks, mobile, SaaS, marketplaces, etc.

Some of those categories have already a winner-that-took-most and the category seems to be “done” — could that be another mantra?

But some other categories seem “immortal” and keep generating exceptional companies. For example, even today, there are great new enterprise and consumer brands’ startups. And what about marketplaces, or SaaS? Are you one of those that think SaaS is dead?

I think we are still scratching the surface of what SaaS and marketplaces can deliver. Look at Slack, it took them 2.5 years to reach 100m in revenue — quite an alive company for a dead trend…

But as you might remember from the intro, VC is a lot about trial and error. Thus, the more time goes by, the better understood the main risks are for those businesses.

So, what happens when those patterns are better understood?

Well, one side effect is that some investors specialize and they become “thesis driven”.

But, what if those patterns become “too obvious”?

Then, they can stop being “non-consensus”. 
They can even get “commoditized”. 
They are not anymore the source of exceptional returns.

But not only other investors will “get” that kind of companies. But also the incumbents will understand those risks, so it becomes harder to disrupt them:

Look at how the tech giants (Google, Amazon, etc.) are reacting to any potential technology threat/shift in mobile, machine learning, VR, etc. Or how Salesforce survived the “mobile-first” threat or is now investing heavily in machine learning.

… Investors Look for The New Outlier

Then, how do investors react to this “commoditization” of “non-consensus” investments?

We start looking for different risks! As you remember, there are many that can be taken!

We can invest earlier, in unproven teams, in new geographies, in less sexy or more competitive markets, in unproven technologies, in new ways of financing businesses…

And if you’re lucky enough, you can find 2 designers working as Co-CEOs, building a disruptive product through better design, in Barcelona: 
Welcome to Typeform!

Today is the Most Exciting Day to be Investing in Startups!

Today, more than ever, every “mantra” is being broken:

  • All industries are “sexy” — startups are impacting every one of them in different ways.
  • Young and unproven founders, from every background, nation and gender, are building amazing businesses.
  • Technology is changing so fast! 
    Today, the hot areas are machine learning, blockchain, AR/VR, etc. But who knows? Tomorrow it can be space, bioinformatics and genetics, robotics — or areas that do not exist yet!
  • Not only that, even the business model of VCs is being challenged with the birth of ICOs…

But each of those topics requires a post on their own. 
Keep posted, those posts will come! ;-)

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