Why I Only Invest in Pure Software

November 9, 2023

WeWork filed for bankruptcy on Monday. Allbirds is a penny stock. Companies like these are why I invest in pure software — only.

The Penny Stock Parade

WeWork peaked at a valuation of $47 billion. It was once the most valuable startup in America.

Now, it’s a penny stock.

The same goes for Allbirds, the once celebrated shoe company. Despite being on every foot in Silicon Valley, Allbirds too is a penny stock — 95 pennies, to be exact.

In the boom times, countless companies raised venture capital by spreading a thin veneer of tech to their old school businesses. Venture capital, which used to back software, began to invest in coffee, eyeglasses, you name it.

Now, those companies are circling the drain.

Even the Biggest Successes Are Struggling

It’s hard to think of a bigger darling in D2C than Warby Parker. As a lifetime glasses wearer, I have to admit, they look cool.

But you know what doesn’t look so cool? Their stock chart.

Warby has avoided penny stock territory, but it’s still down over 80% from its 2021 IPO.

A couple of years ago, you couldn’t ride the NYC subway without seeing a Casper ad. Often, the entire inside of the train was covered in them!

But Casper also turned out to be a flash in the pan.

The company IPO’d in 2020 far below its last private valuation. The stock continued to fall, dropping over 75% before being bought out by a private equity firm for peanuts.

Why Are These Businesses Doing So Poorly

None of these companies should’ve ever raised a dime of venture capital.

Venture capital is meant for highly scalable businesses. Adding one more user to a software product like Salesforce costs basically nothing.

Since high margins kick in at scale, it’s okay for these companies to lose money in the beginning.

The fixed costs of building a product are high. But once software businesses reach a certain size, they become money machines.

Indeed, Salesforce is worth over $200 billion, orders of magnitude higher than any of the other companies we just talked about.

Businesses involving “stuff” like offices or mattresses aren’t easy to scale. And the margins stink.

I don’t blame the founders of WeWork, Casper, or any other company for taking venture capital. Founders get money where they can.

I blame the VC’s for handing it out.

What I Look For Instead

I like businesses that are pure software.

Salesforce makes a CRM it sells to businesses. There is no stuff — just code.

There are no supply chain issues. Adding another user is trivial. And it’s pretty hard to knock off.

You can’t say the same for a mattress.

What’s more, many pure software businesses are winner take all.

If Salesforce is the best CRM for large companies, that’s what you’re going to use. Since it scales easily, there’s no reason the entire Fortune 500 can’t use it.

And indeed, 90% of them do.

Wrap-Up

I want a portfolio full of Salesforces, not WeWorks.

So I look carefully at a startup’s business model. Is it pure code? Is it scalable?

If not, it’s a pass.

There are other forms of financing that can work for old school businesses. Bootstrapping and bank loans are a few options.

But they should never raise venture capital.

What do you think of WeWork and Allbirds? Leave a comment and let us know!

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More on tech:

WeWork’s Bankruptcy: A New Beginning?

Super Pumped (Part Three): What Uber Can Teach Investors

Super Pumped (Part Two): The Rise and Fall of Travis

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Photo: “WeWork Büro Außenansicht Glaseingang” by verchmarco is licensed under CC BY 2.0.

Super Pumped (Part Three): What Uber Can Teach Investors

November 8, 2023

Uber made its early investors billions. But some had a chance to invest early — and missed an incredible opportunity.

The book Super Pumped details how some investors won the Uber deal, and how others missed out. This fascinating tale of one of the decade’s best startups taught me a lot as an investor.

Sequoia’s Miss

Sequoia Capital, long considered the finest venture firm in the world, passed on Uber repeatedly.

We don’t know why they didn’t invest. But I suspect they were concerned about Uber running afoul of taxi regulations.

However, the initial product was entirely legal. UberCab was simply software to order a black car.

In the past, you did it with a phone call. Now, you clicked a button. Either way, it’s legal.

For a firm betting on early stage moonshots, Sequoia was too cautious.

Skate to Where the Puck Is Going to Be

“I skate to where the puck is going to be, not where it has been.”
Wayne Gretzky

When UberCab launched, it was a rather unattractive desktop app, not the slick mobile platform it is today.

But early investors like Jason Calacanis saw past that.

They knew Travis’ vision was to be able to get a car anytime, anywhere using your phone. Their bet was that he could do it — and the bet paid off.

When Uber was founded in 2009, smartphones weren’t yet widespread. The iPhone was just two years old.

But a good investor can spot a trend. And iPhone sales were skyrocketing.

Soon, there’d be one in every pocket. If that iPhone had the Uber app on it, Uber would make billions.

The Best Deals Don’t Come Easy

Other than the first few angels, every investor had to fight to get into Uber. Bill Gurley and Travis Kalanick made the Uber deal in a San Francisco bar on a Sunday night.

You have to chase the best deals, even in your off hours.

That’s why I found myself in a quiet corner of a hotel lobby in Barcelona one night in 2021.

It was almost midnight local time. But this was a deal I couldn’t miss.

The meeting went great and I made the investment.

Today, that company, Deft, has created one of the most exciting multimodal search engines in the world. They just got featured in TechCrunch!

What to Look For

Above all, what made Uber was Travis’ tenacity.

If an investor asked him about his prior experience as an entrepreneur, they’d find out he sold Cutco knives door to door. They’d also learn that his first startup got him sued for $250 billion.

And still, he kept going.

A founder that dogged attacking a huge problem is a great bet.

I find myself looking for the same things Gurley does: strong traction in a giant market. And if the startup takes advantage of a huge platform shift, like AI today, that’s chef’s kiss.

Wrap-Up

For an angel like me, Uber would be the ultimate score. All day, every day, all I try to do is find one.

Super Pumped shows me how important it is to back gritty founders. And they don’t come grittier than Travis.

Uber also taught me to accept some risks, like regulatory issues, if the upside is big enough.

What did you learn from Travis? Leave a comment and let us know!

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More on tech:

Super Pumped (Part One)

Super Pumped (Part Two): The Rise and Fall of Travis

WeWork’s Bankruptcy: A New Beginning?

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WeWork’s Bankruptcy: A New Beginning?

November 7, 2023

WeWork filed for bankruptcy last night as the weak office market led to huge losses. From Bloomberg:

WeWork Inc. filed for bankruptcy, capping a tumultuous period that saw the once high-flying startup navigate a failed initial public offering, Covid-19 lockdowns, a blank-check merger and slow return-to-office trends.

The company — which at its 2019 peak commanded a $47 billion valuation — listed $19 billion of liabilities and $15 billion of assets in its bankruptcy petition in New Jersey on Monday. The Chapter 11 filing allows WeWork to continue operating while working out creditor repayment terms.

Even founder Adam Neumann weighed in — and he’s not wrong!

A Broken Business Model

WeWork has been a capital incineration machine. Once the most valuable startup in America, it raised $22 billion in investor money.

Now, all that money is likely gone.

When I popped into a WeWork in New York last month for a meeting, the place was empty. Perhaps a dozen people occupied a space meant for at least 50 — even at 4:30pm.

This was Lexington Avenue in the 50’s…prime Manhattan real estate. But workers were at home on their couch, not at WeWork.

Part of the problem is there are just too darn many of them. In western Midtown, there are 2 WeWorks just two blocks from each other: one at 37th and 7th Ave, and another at 36th and 8th.

Bankruptcy: Just What the Doctor Ordered?

WeWork could probably close at least half their locations with no impact on members. And bankruptcy will actually let them do that.

WeWork is trying to renegotiate almost all its leases, according to CoStar. The company should be able to secure much lower rents for the locations it keeps open.

Many of WeWork’s leases were signed at the top of the market, from roughly 2019-2021. The rents for office space today are far lower.

With lower rents, WeWork may be able to lower prices from an already low $149/month. Since it’s almost impossible to renegotiate a lease without going through bankruptcy, this is an advantage many of its competitors won’t have.

WeWork could also improve its footprint.

Today, it’s heavy in business districts like Midtown Manhattan. In the future, WeWork could move into dense residential areas.

Think Williamsburg, not Wall Street. The shorter commute might finally get people out of their jammies and into an office.

Wrap-Up

People like getting out of the house. But they don’t want to go far, and they’re stingy.

If WeWork can renegotiate leases, winding up with better locations at lower prices, it could be a solid business.

What do you think the future holds for WeWork? Leave a comment and let us know!

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Super Pumped (Part Two): The Rise and Fall of Travis

November 6, 2023

“Bill Gurley needed to get in on this deal. Over his decade-plus of venture investing, Gurley had watched enough startups succeed and fail to know that this one — Uber, ‘everyone’s private driver’ — was special.”
Super Pumped

Winning the Deal

In 2010, Bill Gurley was already a one of the top venture capitalists in the world. In this little taxi startup, Gurley saw the opportunity to hit the biggest score of his entire career.

Gurley saw two key things in UberCab: strong traction and a platform shift. Above all, Gurley was excited by the size of the market.

“Not only was the company growing fast, but it was perfect for the iPhone, the device that was changing the world.”
Super Pumped

Winning the deal wasn’t easy. After multiple meetings, Gurley’s cell phone rang late one Sunday night.

It was Travis.

Gurley raced up to San Francisco from his Silicon Valley home, joining the young entrepreneur for a drink. That night, they made the deal.

Spinning Out of Control

Uber grew fast, hitting city after city and expanding all over the world. Wherever it went, riders flocked to the platform.

Kalanick raised billions, pouring fuel on the fire. But Uber’s breakneck expansion began to cause serious problems.

Foreign offices like Bangkok were a mess. Employees were doing cocaine and ordering prostitutes — in the office!

Back home in San Francisco, Uber HQ was only a bit more restrained. Sexual harassment and discrimination against women were commonplace — and unpunished.

The dysfunction got so bad, it was impossible to hide from the public. Kalanick was even filmed cursing out an Uber driver who complained about the company cutting fares.

The Investigation

The board was getting nervous.

Investors like Gurley were sitting on billions of profits on their Uber investments — on paper. What if the company melted down before they could get their money out?

It was time to face the music. The board appointed former Attorney General Eric Holder to investigate claims of sexual harassment, gender discrimination, and more.

Holder’s report was damning. He found widespread harassment and discrimination throughout the company.

The Showdown

Bill Gurley had heard enough. Quietly, he started to lobby the board to take out Kalanick.

Kalanick fought back, hard. But after several unsuccessful attempts to rally his allies, he agreed to step aside.

On the day Travis left, Uber was valued at $69 billion. Today in the public markets, it’s worth $98 billion, a growth rate far below the NASDAQ.

Kalanick’s successor, Dara Khosrowshahi, is a competent CEO. On his watch, Uber’s performance has been good — but not great.

I find it hard to believe that Uber wouldn’t be bigger and better today with Travis at the helm. No one can match his intensity or love for the company.

Wrap-Up

Uber’s problems were very real. But pushing out Kalanick was the wrong solution.

Uber could’ve simply fired anyone guilty of sexual harassment, discrimination, or drug use. Kalanick could’ve made clear that any such misconduct in the future meant instant dismissal — if the board had let him.

Instead, they went for the quick fix: dump the CEO.

Still, Uber is a remarkable success. Kalanick’s company took the miserable process of calling a cab and turned it into magic — a feat I would’ve thought impossible.

Even if he was pushed out of his own company, Travis can take pleasure in that.

Should the board have dumped Travis? Why or why not?

More on tech:

Super Pumped (Part One)

Did SBF’s Testimony Seal His Fate?

Why Marc Andreessen Passed on Airbnb

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Did SBF’s Testimony Seal His Fate?

November 3, 2023

FTX founder Sam Bankman-Fried was convicted on all counts in federal court yesterday. His own testimony may have helped seal his fate.

‘I Cannot Recall’

From The New York Times:

Mr. Bankman-Fried’s decision to take the stand allowed him to argue he had no intent to steal money and defraud anyone. But it was a risky move and Mr. Bankman-Fried said he “couldn’t recall” more than 140 times in response to questions on cross-examination.

FTX collapsed less than a year ago. When you tell a jury over and over that you can’t remember anything about events that recent, they smell bulls—.

Zero Contrition

SBF was so evasive in response to the prosecutor’s questions that even the judge was visibly annoyed. And it didn’t help that he seemed to regard the proceedings as one big joke.

From Axios:

SBF’s frustration peaked when Sassoon presented a document on FTX key principles submitted to Congress in early 2022. It included a statement that, “adequate liquid resources to ensure the platform can return the customer’s assets upon request.”

• When asked to read a portion of this document aloud, SBF mocked an informercial-like voice.

If the trial was a joke, the joke was on him.

A Ridiculous Defense

Fundamentally, his defense never made any sense. How can you not know that taking $10 billion in customer money without their permission and spending it isn’t okay?

A better defense might have been that SBF didn’t know about the withdrawals and his underlings acted alone. Or maybe he could’ve argued that his doctor-prescribed ADHD medications drove him into a mania in which he couldn’t distinguish right from wrong.

But I doubt even those defenses would’ve worked. The evidence was just too damning.

The Sentence

Now, the disgraced former crypto mogul faces up to 110 years in prison. He also may be tried early next year on even more charges.

Realistically, the sentences for each count will probably run concurrently, not consecutively. That would put his sentence at closer to 20 years.

However, the judge may throw the book at SBF given his lack of contrition. From Bloomberg:

“He has lost a lot of his arguments for a reduced sentence by taking the case to trial, by not accepting responsibility, and by essentially arguing at every turn that he at least did not commit fraud,” [former federal prosecutor Ari Redbord] said. “Those are the kinds of factors that cause prosecutors to ask for very, very high sentences.”

SBF will be sentenced on March 28th, 2024. I’d set the line at 19 years.

Wrap-Up

In the end, despite all the cryptobabble, SBF’s crimes were very simple.

His job was to safeguard people’s money. He stole it and spent it on himself.

That’s fraud. End of story.

How many years do you think SBF will get? Leave a comment and let us know!

Have a great weekend, everyone!

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More on markets:

Goldman Insider Trader Headed to Prison

Scandal at Two Sigma — Hundreds of Millions Lost

Carl Icahn Loses $740 Million on Bet Against Malls

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Goldman Insider Trader Headed to Prison

November 2, 2023

A Goldman Sachs banker is headed to federal prison after being found guilty of insider trading. Brijesh Goel was convicted in federal court in Manhattan yesterday and sentenced to three years behind bars.

The Squash Court Conspiracy

The scheme played out at the tony New York Health and Racquet Club in Midtown Manhattan. During games of squash, Goel passed tips about upcoming deals to his friend Akshay Niranjan, a Barclays trader.

Niranjan then traded using that inside information, netting about $280,000 for the both of them, according to Bloomberg.

The Sentence

Judge P. Kevin Castel lambasted Goel for lying under oath during the trial:

In handing down the sentence, the judge criticized Goel harshly for lying on the stand during the trial and for diminishing the magnitude of his misconduct in his request for leniency. ‘You took the stand right in this chair and you lied again and again and again,’ said Castel.

Goel Tries to Cover His Tracks

Goel and Niranjan’s friendship was characterized by partying and drug use. And not only did Goel give Niranjan confidential information, he also tried to cover it up:

The details of Goel and Niranjan’s close relationship, including copious drug use, regular squash matches and music festivals, heightened the drama of Goel’s trial, where Niranjan was the prosecution’s star witness against his onetime friend. Niranjan recorded conversations in which Goel asked him to delete texts about his tips, which resulted in a conviction on obstruction as well as insider-trading charges.

‘F***… This we need to delete,’ Goel said in a conversation Niranjan recorded. ‘Did we put on any trade?… It has to be deleted. I don’t even have this chat.’

Time to Pay the Piper

I always assumed Goldman investment bankers were smart. But texting about federal crimes is incredibly stupid.

In addition to his prison sentence, Goel is now on the hook for almost half a million dollars in fines and legal judgements. After he completes his sentence, he may be deported back to India.

It’s quite the comedown for a man who until recently was working one of the most lucrative jobs in finance.

NYC — Insider Trading Heaven

Living near New York City, I can see why it’s ripe for insider trading conspiracies.

Investment bankers, traders and corporate lawyers meet each other on a regular basis. Some become friends — and may be tempted to share tips.

Goel’s sentence is a positive step for fair markets. Still, many blue collar people steal far less and spend much more time behind bars.

Wrap-Up

It’s critical that we protect markets from arrogant, immoral people like Goel.

If the average person starts to think the market is rigged, he’ll pull his money out. This means less capital for business, and a worse future for everyone.

If you know about anyone insider trading, report it! It’s not right to take advantage of average investors with inside knowledge.

Do you think Goel’s sentence was fair? Leave a comment and let us know!

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Super Pumped (Part One)

November 1, 2023

Travis Kalanick’s first company got him sued for $250 billion. Most people would’ve given up after that. But Kalanick didn’t.

Super Pumped by Mike Isaac recounts Kalanick’s amazing story, all the way from his first company, Scour, to Uber.

A Born Salesman

Kalanick was a born salesman. Even as a boy, he was tireless and persuasive.

“Travis and [his father] Donald were part of the YMCA’s Indian Guides youth troop, where Travis was a top seller for the group’s annual pancake breakfast fundraiser. Travis spent hours outside his neighborhood grocery store, pitching shoppers on their way inside to donate to the troop’s fundraiser. He was charming, persistent, tireless and competitive; his parents eventually had to drag him home in the evenings.”

But despite his hard work, Kalanick’s ventures kept falling flat.

“Long before the breakout success of Uber, Kalanick had been seen as an entrepreneurial failure. When pitching clients on his enterprise products, door after door was closed in his face. When one company was nearly acquired by a tech giant, the opportunity was snatched away at the last minute.”

The average person would’ve gotten discouraged. But somehow, Kalanick seemed immune to that.

The Eureka Moment

Surprisingly, Uber actually wasn’t Kalanick’s idea. That distinction goes to his co-founder, Garrett Camp.

Night after night, Camp found it impossible to get a cab in San Francisco.

But one day, while watching a James Bond movie, the solution came to him. Bond was driving guided by a device that told him the route.

What if cabs had those, and riders could see where their cab was? No more wondering when you’re going to get picked up!

Excited, Camp sold Kalanick on the idea.

Building Uber

At first, UberCab was a desktop app. It wasn’t pretty, but it worked.

Bit by bit, riders began to trickle in. Once they experienced the convenience of UberCab, they were hooked.

First Round Capital led UberCab’s angel round. The First Round team met Kalanick by sending him a message, rather than waiting for him to pitch them.

This shows me that the best companies may not come to you. You need to go to them.

‘Always Be Hustling’

Uber methodically removed every conceivable barrier to using their product, for both riders and drivers.

Want to drive for Uber but don’t have an iPhone? Here’s a brand new shiny one, on the house!

Worried about getting fined or towed? We’ll cover that. And did we tell you about the signup bonus?

Uber cold called black car drivers and showed up at garages, uninvited. They stopped at nothing to get supply on the platform.

And for riders skeptical of a new service, Uber offered free rides. After all, who’s going to turn down a free ride in a fancy black car?

Soon, Uber was growing fast.

Wrap-Up

The biggest lesson I’ve learned from Travis is to never give up.

It would be pretty easy to give up after being sued for a quarter trillion dollars. But right after Scour failed, Kalanick sat down with his co-founder Michael Todd, brainstorming new business ideas.

There’s a lot more to the Uber story: Bill Gurley’s investment, Uber’s torrid growth, scandals, and Kalanick’s eventual removal. I’ll cover those in another post soon.

What have you learned from Travis? Leave a comment and let us know!

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More on tech:

Why Marc Andreessen Passed on Airbnb

How Ron Conway Landed His Investment in Google

Why I Invest in Startups

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Why Marc Andreessen Passed on Airbnb

October 31, 2023

“One of the things with outliers is the ideas often seem completely nuts up front.”

Marc Andreessen thought this couchsurfing app was crazy. Someone’s going to get murdered!

A Startup Not Even a Mother Could Love

Brian Chesky and Joe Gebbia, the Airbnb co-founders, pitched just about every investor in Silicon Valley, including Marc Andreessen. But Andreessen found the concept absurd and dismissed it.

“We passed. We didn’t even meet with them.”

Airbnb is now valued at $75 billion. Dismissing Chesky and Gebbia cost Andreessen billions.

Andreessen tells this incredible story in a vintage interview at Y Combinator. The host: none other than Sam Altman.

Andreessen wasn’t the only person who thought Airbnb was silly. Chesky’s own mother didn’t believe in it.

The Pitch Meeting from Hell

And forget about investors! Chesky recounts one hilarious meeting on a recent episode of This Week in Startups:

“…Joe and I went to University Avenue. We met an investor, who I won’t name. He orders a strawberry smoothie. He then sits down, drinking his smoothie. Never picked his head up.

It was my first interaction with an investor. I thought, ‘Maybe this is what they all do.’

He goes ‘Uh huh, uh huh, uh huh.’ And then within 10 minutes he, like, leaves. And I thought, like, he had to park his car. We haven’t seen him since, though.”

But, What If It Works?

So often, the best companies have a terrible flaw.

Uber sounds crazy too — get into some stranger’s car? Fat chance. And isn’t this against the law anyway?

Instead of just checking boxes, I try to ask myself “What if it works?”

If Airbnb works, it could replace hotels. If Uber works, transportation changes forever.

If they fail, you know what happens: you lose your money! But a good early stage investor makes small bets, so that’s not a problem.

In our business, it’s all about the upside. And despite its flaws, Airbnb had a heck of a lot of upside.

Andreessen’s Second Chance

The story ends happily for Chesky and Gebbia — and Andreessen too! Marc and his firm, a16z, led a growth round of Airbnb at a $1B valuation.

He could’ve invested at a valuation of just a few million early on. But having a piece of this iconic company was worth paying up for.

That’s one great thing about our business: there’s always a chance to make good.

While I mostly invest at seed, I do the occasional Series A if I missed the seed round. There’s nothing more important than being in the best companies.

Wrap-Up

The best startups often seem like a godawful idea. If we go about just checking boxes, we’ll pass on them.

As angels and VC’s, our job is to think about what could go right. If a startup has a real shot at changing things, let’s write that check!

Would you have invested in Airbnb? Why or why not?

More on tech:

How Ron Conway Landed His Investment in Google

How I Double Down for Better Returns

Why I Invest in Startups

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Scandal at Two Sigma — Hundreds of Millions Lost

October 30, 2023

It should have been rock solid. But a rogue trader at Two Sigma, a $60 billion hedge fund, has caused $170 million in investor losses.

Two Sigma is now under SEC investigation. From The Wall Street Journal:

A researcher at Two Sigma Investments adjusted the hedge fund’s investing models without authorization, the firm has told clients, leading to losses in some funds, big gains in others and fresh regulatory scrutiny.

The researcher, Jian Wu, a senior vice president at New York-based Two Sigma, was trying to boost his compensation, Two Sigma has told clients, without identifying Wu. He made changes over the past year that resulted in a total of $620 million in unexpected gains and losses…

In addition to $170 million in unexpected losses, Wu’s tampering also caused $450 million in gains. While Wu might use that to justify his behavior, his rogue trades could’ve cost the firm billions.

Fortunately, the fund has since made investors who lost money whole. But I wonder how much more they could lose if this happens again.

Two Sigma appears to be in chaos. For months, the firm’s founders, John Overdeck and David Siegel, have been at odds.

This makes it difficult for the fund to make decisions. Wu appears to have taken advantage of this power vacuum.

Many of the investors in hedge funds are pensions and university endowments. How can those managers go to their boards and justify keeping money in a fund under SEC investigation?

With dysfunction at the top and the government nosing around, I expect investors and key employees to jump ship.

Hedge funds are prone to these death spirals.

After big losses in meme stocks, Melvin Capital lost investors and shut down. The same could happen to Two Sigma.

Companies need one strong leader. Infighting at the top will kill a firm faster than anything else.

Do you think Two Sigma will survive? Leave a comment and let us know!

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Photo: Two Sigma Co-Founders David Siegel and John Overdeck.

How Ron Conway Landed His Investment in Google

October 27, 2023

“I called them every month for five months and finally got my audition with Larry and Sergey.”
Ron Conway

Ron Conway is one of the best known angels in Silicon Valley. But getting into Google still wasn’t easy.

A Little Project at Stanford

The story began at a party.

Conway ran into David Cheriton, a Stanford computer science professor. Both were wearing tuxedos, which they hated.

“And I said, ‘Hey, what’s happening at Stanford?’”

Cheriton described an interesting project by two students in the comp sci department. It searched the internet using page rank, or the number of inbound links a website has.

“In 1998, that was not obvious.”

Getting the Meeting

Intrigued, Conway asked to meet them. Cheriton demurred.

“You can’t meet ‘em till they’re ready,” he said.

Conway relates this incredible story in a panel discussion at Stanford from 2014. Bonus: the interviewer is a young Sam Altman.

Conway wouldn’t stop until he got a meeting. Months later, he finally got his chance.

How Conway Won Over Larry and Sergey

“Right away, they were very strategic. They said, ‘We’ll let you invest if you can get Sequoia.’”

Google was already a hot commodity among investors. But despite his sterling reputation, Conway had to earn his way into the deal.

And just like clockwork, he delivered. Conway got the young entrepreneurs the meeting with Sequoia, who invested in Google’s Series A in 1999.

Fun fact: Shaq, Arnold Schwarznegger, and Henry Kissinger were also investors!

How Conway Picks Founders

How did Conway spot Google as the incredible opportunity it was? Above all, he evaluates people.

“We invest in people first, not necessarily the product idea.”

At the seed stage, when Conway usually invests, the product is likely to change a lot anyhow. I have several seed investments that threw out their first product and built something completely different.

When Conway evaluates a founder, he looks for leadership ability first.

“…Is this person a leader? Is this person rifle-focused and obsessed by the product?”

One of the first questions he asks is why the person started this company. He looks for founders solving a problem they encountered.

When a founder is solving his own problem, he’s more likely to be obsessed with it. And it takes obsession and incredible hard work to make a billion dollar company out of nothing.

Wrap-Up

The story of how Conway hit the ultimate score teaches me to be persistent. The best deals don’t come easy.

If one of the most respected angels in Silicon Valley had to work his butt off to get into his best deal, I’ll have to work even harder!

Do you pursue founders? Why or why not?

More on tech:

Why I Invest in Startups

How I Double Down for Better Returns

How Product Velocity Can Make You a Unicorn

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.