wait… what?
Investors have different strategies in terms of how they approach opportunities. Given the sheer number of startups we speak to, there tends to be a need for some kind of generalizable approach simply to facilitate the process of decision making. Some investors take a thematic approach: they pick certain areas, like marketplaces or VR and begin to seek out opportunities in those sectors. Others prefer thesis-based investing, where they have a more specific theory about how the world will unfold (e.g. There are certain components of self driving vehicles that the large auto makers will be unable to build. Companies that build best of breed subsystems will have a large opportunity.) Successful thesis-based investing usually requires domain expertise or some special insight into how a market will evolve.
When meeting with entrepreneurs they frequently ask how I approach making these decisions. Ultimately at Sequoia we make decisions as a partnership, but of course each individual comes to their conclusions differently. In any case, I’ve been asked on numerous occasions, frequently right when we sit down, “So what’s your thesis?” This, as you might expect, has caused me to wonder what my thesis actually is. After all there must be some rationale I use to make decisions.
Eventually I figured it out. I don’t have a thesis.
You see, thesis-based investing means you have some pre-established point of view, and you are waiting for someone to walk in the door and tell you what you already know. It assumes there is some large opportunity you saw long ago, and finally someone else has figured it out and is going to go work on it. After being an entrepreneur for 18 years, and seeing many things I was so sure of ultimately fail, I‘ve developed a fairly humble outlook when it comes to my abilities of prognostication.
What I eventually realized is that my approach is exactly the opposite of thesis-based investing. I’m looking for teams and entrepreneurs that can share an insight or technology that is a complete surprise. In every pitch I’m hoping for that “wait… what?” moment. If an entrepreneur has truly figured out a counterintuitive opportunity, it means that not many people will be pursuing it, and if the market is large enough or will be a large enough, they may end up owning it. Of course all the other things investors tend to care about (team, traction, market size, etc…) are also critical, but if that key insight is there, it provides the initial hook that makes me want to dig deeper and learn more.
As you gain experience as an investor, you start to build more and more rules based on what you’ve learned. You become convinced certain sectors are challenging and certain types of businesses won’t work. You use pattern matching as a decision-making shortcut. If it didn’t work before, it won’t work now. If it looks like a past success, it has a better chance of being a future one.
My goal is to fight this as much as possible.
I’d like to walk into every meeting without a thesis or prejudgement and simply see if there is an insight or development I’ve never heard before. These don’t have to be complex ideas, they can simply be facts we don’t think about much in the collective intelligence of Silicon Valley. I remember when the Clutter team explained that Public Storage is a 40 billion dollar company and their facilities are 94% occupied and the only way they can increase revenue is to increase rates. I’m pretty sure I actually said, “wait…what?” I also remember watching the Carbon team magically pull a 3D model out of a small liquid reservoir like in the Terminator movies. That was certainly a surprise, and the exact type of moment I’m referring to.
I don’t know what the next big opportunity will be or where the next great company will come from. I don’t have a thesis about what it will look like or what sector it will be in. Whatever it is, it’s probably something we haven’t yet seen or even thought much about. The key for me is to remain open minded enough to allow myself to understand when something is truly new, and not just try to shoehorn things into a pre established mental model. I simply need to remember that regardless of all that I’ve learned along the way, I still don’t know everything. With that as a mental model I can allow myself to be surprised when I come across a team working on something truly novel, and I can still pause, and say, “wait…what?”
p.s. As always, if you want to connect with me, you can find email and such here - https://www.sequoiacap.com/people/omar-hamoui/
