We’re honored to have Mark Pincus back us at Village Global. He’s one of the most creative and energetic founders in the Valley. I’ve known Mark for a long time. I really enjoyed the opportunity to chat with him in this fireside chat (embedded below) where he covers his entrepreneurial career to date and lessons learned, the founding of Zynga, his philosophies on product management, and more.
A tweetstorm I published last week…
Marketing people at venture firms are always trying to figure out if they should be promoting the firm brand or the personal brands of the individual GP partners. Are there venture firm brands that are “bigger” than the individual GPs’ personal brands?
Brands that are arguably bigger than any one person include Sequoia, Greylock, Accel, Kleiner, etc. Multi-generational performance over 40+ years. But will newer VC firm brands ever outshine the underlying individual personal GP brands in a shorter period of time?
It’s rare because the VC business model is so individualistic: individual GPs, masters of the universe, eating what they kill, serving on boards solo, etc. VC firm “partnerships” are often collections of individuals more than a team (despite what they say).
This dynamic has been compounded by a modern media environment that amplifies *individual voices*. Corporate Twitter accounts suck. Authentic, personal, human voices rule. I doubt there’s a venture firm corporate Twitter account with more followers than any popular GP.
To be sure, VCs themselves tend to know all the firm brands and the associated inside baseball. But founders I speak to often know the names of human GPs first, and firm names second (if at all). “I want to pitch @rabois” more than “I want to pitch Founders Fund”
If you’re creating a new VC firm today, should you just do away with the notion of building a firm brand altogether? Look at what @toddg777 and @rahulvohra named their new venture firm: The Todd and Rahul Angel Fund Should more venture firm names simply be the names of the GPs?
The firm-wide brands that endure and outshine personal GP brands have to, in substance, operate as an institution greater than the sum of the parts (i.e. not driven by individual star GPs). Example “institutions” would be @ycombinator, @villageglobal, @join_ef, @JoinAtomic.
For LPs who want to invest in venture, in a concentrated set of relationships over a long period of time, this means they’re often investing in either a) fragile large firms, or b) stable small firms run by the founding GPs.
Large firms are fragile because GPs take their value with them when they leave. Startup founders follow human GPs. The firm brand is weak. There’s no *organization* for the LP to invest in for years and years that has a moat independent of specific GPs.
Small firms run by the founding GPs are stable because the founders won’t move/leave (usually). So the personal brand capital accrues entirely and permanently to the firm. But some larger LPs struggle with this option because it’s hard to deploy large dollar amounts into small funds.
It’s for this reason that I’m bullish (and admittedly biased) in favor of the new firms formed as “institutions” not only because of how they can add value to founders, but also for how they can serve as more reliable long term stewards of LP capital.
Some seed stage angels and VCs — including we at Village Global — will make “founder bets” where the investment thesis is mostly or entirely about the talents of the founders, irrespective of the founders’ specific idea, business model, market, etc.
The purest form of founder bet is on a talented team with no idea at all. Simply a founder(s) who know the next chapter of their life is going to be an entrepreneurial journey of some sort — idea TBD. We call these Day 0 Founder Bets. Usually these take the form of being the first $100k-$500k into the company.
Founder bets make sense to some VCs because team matters most. Team is the overwhelming driver of startup success. Now, it’s true that a great team can’t beat a bad market, as Marc Andreessen once noted in his canonical post on product-market-fit. This leads Marc to put market above product and team when evaluating the trifecta (product/market/team) of forces that explain startup success.
But a great team — if it’s early enough in the life of the company — can pivot to a new market. As we all know, many of the great businesses of all time ended up pivoting away from their day 1 idea. So at angel stage/pre-seed/early seed, team trumps all in my opinion, especially a team that knows how to pivot if necessary.
Given the possibility of pivot, the boldest form of founder bet is when when you invest in a founder with an idea you actively dislike. You nonetheless bet on the founder to either prove you wrong (and VCs are wrong plenty!) or you bet they’ll pivot to a new idea over time.
You know what’s even trickier? Betting on a founder whose idea you don’t believe in when the founder is unbelievably passionate about it. It’s the founder who says “I’ve been obsessed with this problem for the past two years. I can’t stop thinking about it.” Normally passion’s a good thing and the more personal the passion, the better. It leads to more customer empathy, more overall persistence, and all the rest. But if it’s overriding personal passion that’s feeding a bad v1 of the idea (in the humble opinion of the VC), it may make it less likely the founder will pivot later. By contrast, some founders arrive at their initial business idea through an analytic process that’s not quite as personal. They’re not scratching their own itch; they just believe they’ve identified a market opportunity through rigorous research and customer interviews. (There are actually many great companies founded this way.) In the situations where the founder’s day 1 idea is more “analytically” conceived, it’s easier for me to make a founder bet on a founder whose idea I disagree with — because I can more likely see the possibility of pivot.
To be sure, not all seed VCs make founder bets. I know several great seed VCs who’ve told great founders, “I love you, I want to back you, but I won’t back this idea. Change your idea to X, and I’ll fund you.”
Here’s Anamitra Banerji from Afore:
And pure founder bets are almost never done at Series A and beyond. The later the stage of the investment opportunity, venture firms evaluate team heavily but also give due attention to product, revenue metrics, broader market dynamics, etc. Here’s Semil Shah:
There are many ways to make money in venture. To understand why some seed funds make founder bets and others do not, portfolio construction and overall firm strategy explain a lot. If you’re a seed fund that’s making 5–10 investments in a year, you’re more likely to have the time and inclination to carefully diligence the investment beyond just team strength. If you’re investing in 500 companies a year, a la Y Combinator, you’re more likely to say “Fuck it, fund it” if the founder possess enough raw talent. There’s simply no time to do it any other way.
At Village Global, we’re happy to make founder bets (including day zero bets when the founder hasn’t yet formed a complete idea), especially through our Network Catalyst accelerator program. Applications for the Summer ’20 vintage are now open. Amazing founders apply — we want to bet on you.
The Sequoia scouts program recently celebrated its 10th anniversary. The founding of that program kickstarted a trend in the venture capital industry. As Jason Lemkin once asked: “Anyone not a scout these days?”
Over the past two years, my Village Global partners and I have spent a ton of time studying this trend and indeed building our own effort around it. Here are some frequently asked questions and answers about VC scouts based on our experiences.
What are “scouts”?
People who are empowered to invest money in startups (usually in ~$50k increments at the seed stage) on behalf of a venture capital fund, sometimes with full decision making autonomy.
What are the differences between the scout programs?
There are two broad types of scout programs.
Some scout programs are run by venture funds that for the most part focus on Series A or later investing. For example, Sequoia Capital is commonly credited with inventing the scout program. Sequoia invests the vast majority of its capital via its full-time GPs at Series A stage through IPO. Some of their investments at seed stage happen through independent scouts who write $25k-$50k checks. It’s an active program but in the grand scheme it’s minor part of Sequoia’s reported $8 billion global fund.
Then there are independent, newer firms like AngelList Spearhead or my firm Village Global. At Village, a network strategy is a central part of our firm strategy. We thrive based on our ability to execute our scouts strategy. At the independent venture firms, you’ll generally find more innovation, resources, and community around scouts.
Why the blossoming of scout programs inside legacy firms?
Over the past 10 years, some venture funds have ballooned in size. Lightspeed, A16Z, Sequoia, Accel, Greylock, Founders Fund, Thrive, Spark, and others are all now deploying billion dollar+ funds, a substantial step up from their historic fund sizes of $200–400 million. Suppose one of these firms employs 6–10 GPs to invest that billion dollars. To get leverage on their time, GPs need to be writing minimum $10M+ checks — ideally bigger.
The problem is, at the seed stage, founders don’t want or need a $10M investment. The round sizes are smaller. Small check sizes don’t move the needle for the VC when they’re trying to allocate over a billion dollars. So should these mega funds just get out of the seed stage business altogether and focus on Series A, B, and later? Some firms have done that, but many have decided they can’t. They need to be seeing seed deals because that’s today’s seed deal is tomorrow’s great Series A — it’s the pipeline.
Hence their scout programs. Big firms perceive them as an efficient way of scanning seed stage flow to feed their main Series A or Series B business.
Why are there independent, network-driven firms?
The existence of firms like Village Global represents a different macro phenomenon. At Village, we aren’t trying to lead Series A’s, B’s, and growth rounds. Our scouts aren’t lead gen for later stage investing. We’re taking a network approach to executing on our core seed mission.
Why a network approach? It used to be that a few full time men on Sand Hill Road could wait for the best founders in the Valley to parade into their office and pitch their businesses. Today, that passive approach doesn’t cut it. There’s an explosion of software-driven, diverse entrepreneurship around the world and across almost every industry. We believe this explosion of opportunity requires a fundamentally different approach to sourcing, selecting, and supporting. We believe a wide sensor network (i.e., a network of dozens of scouts) is more likely to discover a talented founder on day zero.
What’s more, the way founders socialize and develop their business ideas has changed. Thanks to online communities and social networks, founders are increasingly able to connect with fellow founders, professors, authors, or other people they know or respect. These days, when you’re brainstorming a business idea, your first stop may not be the VC’s office — and all the intimidation and nervousness that might entail. You might instead call a founder friend to ask for advice.
We want to ally with the people who are that first call, whose expertise makes them valued resources to founders who are just getting going. We empower those people — our Network Leaders — with our Village Global capital to back their smartest friends. And then we bring to bear the full resources of our network to make those companies more successful post-investment.
Can non-professional, non-full time people make good investment decisions?
At the earliest stages of company formation, you’re mainly evaluating whether the founders are unbelievably resourceful and persistent, and whether they’re attacking a massive problem that, if solved, could produce a large business. There aren’t metrics to analyze. There aren’t customers to interview. So at this stage, we think it’s very possible for someone who’s not full time, or even not terribly experienced at investing, to back her smartest friends, and for those friends to end up creating huge businesses.
Chris Sacca, one of the most successful angels ever, backed Ev Williams and Travis Kalanick, before he had any investing track record or sophisticated framework for investing. It worked out pretty well for him — and eventually for the LPs who backed his angel-stage funds. Who’s the next Chris Sacca?
Do the scouts make money themselves?
The sharing of economics differs from program to program. Almost every firm — including Village Global — shares economic upside with their scouts.
For us, we also focus on non-economic benefits. We cultivate a community between and among our Network Leaders. We expose them to and connect them with our luminary LPs. For example, several of our Network Leaders have had intimate interaction with people like Bill Gates, Bob Iger, Abby Johnson, Eric Schmidt, Ben Silbermann, and others.
Most great scouts — most great angels in general, I’d argue — are not doing it for the money. They’re doing it for the love of the game. Making money is a happy coincidence if you find yourself in luck’s way.
Do scouts invest their own personal money alongside the venture fund?
At Village Global, we ask most of our Network Leaders invest money alongside us commensurate with their net worth or whatever would constitute skin in the game. We think it makes for better decision making.
Are scouts exclusive to one firm?
Tribalization of the valley’s most precious asset – people. Eventually most execs (+ many more) will be affiliated with one VC firm or another (if not explicitly via scout $, than implicitly)!
— Megan Quinn (@msquinn) June 29, 2018
Some venture firms try to insist on an exclusive relationship with their scouts.
At Village Global, we eschew a zero sum, exclusivity mindset. We’re fine with our Network Leaders working with multiple venture firms so long as there’s good communication and transparency around the deals they’re doing.
As it turns out, most of our Network Leaders prefer to just work with us because of our focus on them and the network strategy that’s in our DNA.
Should founder/CEOs really be angel investing on the side? What about focusing on their business?
Different sorts of people can be scouts. At Village Global, we have professors, full-time angels, big company execs, retired GPs, and active founder/CEOs in our network.
The most famous archetype — popularized by Sequoia — is for founder/CEOs themselves to be the ones investing the scout capital.
Some people worry that founders who invest on the side are too unfocused:
Being an early stage startup founder and an active angel investor sends a negative signal to your team. Reinforces a class divide and perception of not being all in (yes it’s rational to diversify but irrational belief is what people follow and what stops them starting their own)
— Harj Taggar (@harjtaggar) May 31, 2019
Every hour you spend on “not your product” and “not your startup” is ultra under-leveraged compared to actually doing those things. Talk to users, get customers, recruit, hire and manage your team.
Signalling is a real thing, but it’s minor compared to actual impact— time spent
— Garry Tan (@garrytan) June 1, 2019
Here’s my question: Is any hobby outside of work a dangerous distraction? Should founders who work 80 hours a week and spend 20 hours a week on an intellectual, artistic, or athletic hobby, cut out the hobby time and increase to 100 hours a week of pure focus on their startup? Some people believe that. If that’s you, then it’s true that being a scout (i.e., investing on the side) as a founder is just one more distraction from your day job…along with playing tennis, or writing short stories, or occasional travel, or volunteering, and any other hobby one might pursue.
Myself, I don’t think working 100 hours a week is healthy or sustainable, and I don’t think it increases the odds of success. I also don’t think your team will respect you more if you work those extra 20 hours a week like a heartless robot.
If we’re open to the idea that even founders ought to be able to spend some precious hours each week not directly working on their startup, then I’d argue that of all the hobbies one could have (and who are we to judge?), angel investing is comparatively high value.
When you invest in or advise startups as a CEO, you learn. You learn how other CEOs make decisions, especially around fundraising. You grow your network of fellow CEOs and of VCs. You intertwine yourself with a community of people who will likely be more loyal to you, or at least have no choice but to stay in touch with you as you’re on their cap table for life! Among other reasons, this is why Sequoia Capital encourages many of its founders to be scouts.
And sometimes angel investing can actually benefit the CEO’s main focus: her startup. Adam Nash recently tweeted about how Reid Hoffman’s angel investing in Facebook and Zynga (while he was CEO of LinkedIn) helped LinkedIn:
I do. 😉 Facebook, Zynga, etc. All happened at that time, and his view into the landscape was invaluable.
— Adam Nash (@adamnash) October 15, 2019
Here’s Falon Fatemi, who’s a scout and a founder/CEO of Node.io (which has raised ~$40 million):
Depends on what your definition of active is. I’ve made investments in friends and talented founders I’ve met along the way, all while focused on my business. If anything its made me a stronger founder — you learn from others as much as they learn from you.
— Falon (@falonfatemi) May 31, 2019
I’m a founder and angel scout, investing in friends and cool products I love. actually makes me a better founder and benefits my business in helping others. Not to mention network effects with introductions. I don’t think you can judge unless you have been in the same shoes.
— Falon (@falonfatemi) October 17, 2019
Should you start angel investing as part of a scout program?
The great Elad Gil, in his post on scouts, frames the pros and cons this way:
The positives of investing include giving back to others, broadening your network, information access (for example, what new distribution approaches are working for others), and the potential for financial return (although you should plan to lose any personal money you invest — so do not invest if you can not afford to lose the money).
The cons include investing can become a big distraction, can irritate your cofounders or employees if a lot of your time goes to it (and your startup is not working), and the potential to lose money.
Is being a scout a good way to become an investor?
Founders wanting to be investors would be far better served by mastering the allocation of capital on their balance sheets than putting VC’s money to work via a scout program.
— Bryce Roberts (@bryce) June 30, 2018
Per Bryce, it’s true that in today’s venture industry that best path to a job is to be a really successful founder with a big exit. VC firms tend to favor successful former founders. So if you’re deciding between focusing on your startup or focusing on investing, focus on your startup.
But a lot of VC firms, and all venture capital LPs (they matter if you want to found your own VC firm), care about your angel investing track record. They’d prefer to see some experience at finding deals and investing in the good ones. If you’re cash illiquid, investing scout money — in a time-boxed, hobby kind of way — is a good way to begin to build that track record.
How do you become a scout at a venture firm?
Lots of ways. If you’re interested in working with us at Village Global, feel free to reach out and say hello.