What got me thinking:
🎙 | Early Signs Of A Billion Dollar Company - Elad Gil
Recently, I’ve written my first angel investments into early-stage companies (with a few more in the process). But, I also have to say “no” regularly, even though most ideas are great. With such a risky industry, the question is, what makes a good investor?
Elad Gil is one of the most renown angel investors around. His portfolio includes Airbnb, Airtable, Anduril, Brex, Checkr, Coinbase, Flexport, Gitlab, Gusto, Instacart, Opendoor, PagerDuty, Pinterest, Samsara, Square, Stripe, and Wish. He recently sat down on NFX and discussed how he spots companies before they’re worth billions. Here are four key points.
1. Colossal markets are more important than you think. Teams do matter a lot, but that’s probably the wrong emphasis. If the demands too small, even the best founder will fail to meet their aspirations. If the market is large enough, then even a mediocre founder can succeed.
2. Companies that innovate early and get to a second product line tend to innovate frequently. Like most things, innovation takes practice. It’s a muscle that needs working out. If you do it early, when operations are small, you’ll likely do it again. If you leave it late, you’ll struggle to do repeatedly as operations scale.
3. Every startup needs a single miracle. Any less would make for an overcrowded market - because it would be too easy to enter. Any more would require “cascading miracles” (ref. John Malone) to succeed. The compounded the difficulty, reduces the slim chance of success from low to virtually zero.
4. Balance a fair valuation and expert board members. Early board seats within the company matter. Board members can even vote to remove the founders. So make sure you bring people on board who you can work with for at least ten years. They’re as significant as early employees. You also want to make sure one or two of them has growth stage expertise. The skills needed initially differ to those required when scaling, acquiring companies and expanding geographically.
Investing is an area full of tried and tested principles. I’ve spoken to veterans who’ve wasted money trying to rewrite these principles only to lose money. This list is not exhaustive, and there’s some room for different bespoke thesis. However, study these principles and others, that will allow you to spot outliers.
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Merry Christmas 🎅
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Thanks for reading!