Invest Differently, Succeed Differently
How Roy Bahat of Bloomberg BETA cultivates trust to match money to founders.
Bloomberg BETA isn’t your traditional VC fund — Rather than using rigid business tactics to game the competitive VC market, Roy utilizes rather high-minded strategies to build a mutual trust with founders. Much like any successful relationship, BETA wants to build a strong bond with their entrepreneurs and mutually support each other. In order to begin building trust early on, they are willing to invest earlier than many others investors would — sometimes even upon incorporation of the company.
“It allows us to build a trusted relationship with the founder — because the earlier on you are in the life of the company the more it’s like being there at the very beginning.”
Sometimes the entrepreneurs BETA invests in aren’t even actively looking for money. In fact, the fund likes to be so early that they try to predict who might start a company — a tactic no other investor has ever employed. You could say the fund is almost like the perfect spouse: it cherishes mutual loyalty… and wants to give you money for that loyalty! BETA analyzes publicly available data about people in the tech industry to discover future founders. This data doesn’t discriminate, unlike many people who think founders should be a certain way, have gone to a certain school, etc.
“You end up with a diverse group… When you look at the people who say ‘you know what, I’m going to make a career change or acquire some new skills quickly and strike out on my own.’ My hypothesis is: that group is likely to over-index with other people who are likely to do extraordinary things.”
The myth of the founder
They have a certain package of skills. This is false. No one has had the perfect set of skills, and chances are Bloomberg BETA doesn’t invest in people who’ve had successful startups before. Those people would be self funding at an early stage. The mentality of non-founders is that they think they don’t have good ideas — so they don’t start anything. But the idea is almost unimportant. Roy advises to start by just building something: a side project that helps you make a little money, something you or your friends would use. This builds trust in yourself and will get you in the habit, thinking about creating and experiencing the power of fixing something that’s broken.
“Once you see the small gap between your imagination and reality — starting companies becomes a tool you can wield to shape the world before you.”
Advice on joining a startup
Face the fact: It’s impossible to know if a startup is going to succeed. But it’s easier to screen for things that are likely to lead to failure. One way to do this is to find a company that is post product/market fit and/or growing rapidly. Joining pre product/market fit you are taking founder level risks without founder founder level rewards. But at a high growth firm you are getting handed things that are way above what you’re capable of and that’s how you learn. Another important factor to consider: passion — join a company in an area you’re passionate about and out-passion the other candidates. Also, see what companies can out passion other companies. Ultimately, base your decision on people you trust and things you deeply care about.
“Success is an outlier thing.”
Cultivate trust to invest
Once a potential future founder is discovered, it’s all about building trust. The more you can understand what other people think, and why, the more trust you can build. Empathy is a key trait when investing and having mutual trust makes everything else you do easier. How does Roy create real genuine trust? — He puts himself in the shoes of the founder and, if he wouldn’t happily accept the deal, he won’t make an offer.
“Chances are you can take advantage of the situation but there will be a price to pay — that person will realize it and maybe not bring his/her next thing to you. The future is always more valuable than the past.”
A good investor aspires to deeply understand others — the more of an influence you can have on someone the more you can both change things. It’s the little things that build trust.
“Trust… it’s like an egg toss.” — Roy’s blogpost
Thanks, to Roy, for taking the time to speak at Tradecraft and digging into the importance of trust and how it can lead to successful VC-founder relationships. We talked about your discussion a lot after you left and I can assure you that you’ll encounter several of us in the future.
For more insights from Roy follow him on Twitter @roybahat. If you’re looking for a trusted VC check out BETA’s public operating manual.
Feel free to reach out to me: trent@tradecrafted.com or Twitter: @trentmervine. Thanks, to Mischelle Mulia, for the awesome sketchnote! @hi_mischelle
