When weighing an investment in a data-fueled startup, we ask ourselves three questions, in this order:
Do we believe in the founders?
Do we believe in their approach?
Do we believe they are the right founders for this approach?
Founders come first. If you’re starting a company, start with people. Make sure you are the type of founder we—and employees and customers and other investors—can believe in.
PEAs Solve Big Problems
During our time at Yahoo! and as venture capitalists we’ve seen teams of all stripes succeed—and flop—in just about every corner of the tech industry. There is no formula for a winning team. There are, however, qualities that give teams a much greater chance of success, and we seek them out. They are:
- Expertise, and
- Ability to execute.
PEAs solve big problems.
A Day in the Life of a Venture Capitalist
Let us bring you into our world and see life as we see it. We begin every investment as a journey together with our founders, and it starts with a pitch meeting that goes something like this:
It’s a sunny day in Palo Alto...
I hustle into one of the few remaining refurbished airfield storage buildings that is now the Morado Ventures offices. Updated with modern touches, the building features an inviting lobby, open work stations for visitors and plenty of meeting space, which is where I’m headed.
I catch a whiff of fresh flowers—Cathy always keeps a fresh arrangement, making for a pleasant welcome—as I breeze through the lobby on my way to one of the glass-walled conference rooms that line the main room.
Beads of sweat line my palms and my heart quickens as thoughts of possibilities buzz around my head. I’m excited like a little kid about to get set loose in Fry’s Electronics.
It’s the same kind of nervous energy that accompanies other firsts in life: a first birthday, a first date, a first ride in an autonomous car. If the stars align—in the moment I don’t think about how rare that can be—this will be the first of many meetings with a founder about to shake things up.
On any given day, this could be Ash or Mike—and often it’s both of us—carrying the excitement of possibility into that conference room. A pitch meeting fills us with the same type of giddy anticipation that Neil Armstrong must have felt stepping onto cosmic dust for the first time. Each pitch meeting is a chance for us to meet the person or team we’re about to join on an epic journey together.
Much like the passion of our founders, we are passionate about finding PEAs. We like to truly get to know our founders, and the pitch meeting is our first chance to dig in and understand their mission. You might pull out a deck, flip around your laptop, project it on a screen or dive straight into a product demonstration. We’re engaged throughout the conversation. And while some entrepreneurs may misinterpret our probing questions as being critical, we want to say, “We’re in! We’ll invest and join your team!” just as badly you want to hear those words.
So, what can cause us to say those words? You have to prove you’re a PEA.
Passion: The Great Equalizer
“Nothing great in the world has been accomplished without passion.” —George Wilhelm Friedrich Hegel, German philosopher
The first essential quality we seek in a founder is passion. People scratching their itch. Passion is the great equalizer in startups because it can compensate for other areas on your team: Passionate founders attract other passionate talented people.
We look for founders who are deeply passionate about what they do—who feel they were born to do this, even if they would go broke doing it. In the face of countervailing winds, they stride forward. When the inevitable hiccups happen, they adjust and keep moving toward the goal. The goal is to build a widely successful business; they’ll stop at nothing until they reach that goal.
Bill Gates explained passion this way to a group of Harvard students last year: “The thing that you’re likely to be world-class at is whatever you obsessed over from age 12 to 18. In my case, it was writing software.”
The very first check we cut as venture capitalists went to just such a founder. As Ooshma Garg of Gobble told us in our first meeting at a Palo Alto Starbucks, she developed a passion for her father’s home-cooked Indian cuisine at an early age. As she saw early success as an entrepreneur, she found herself veering farther and farther away from that passion and into an unhealthy lifestyle. Here’s how she told it to us:
“I was working 24/7, eating Taco Bell and chicken nuggets every day. I was mentally stressed and physically unhealthy … I finally said, OK, I know I’m not the only one with this issue. I need to solve this problem.”
His concept is essentially a voice-controlled Android computer in a light socket. Our first reaction: Why would you want an Android computer in your light socket? An hour into our first meeting with Collin, we were enthralled with the problem and his novel solution. He had obsessed over every detail of the problem of home automation; his obsession infected us. We found ourselves thinking a lot about light switches after meeting Collin.
A similar thing happened with Rohit Prakash and Nipul Patel. For the founders of the Coast App, a messaging app for small businesses, there is no mistaking their passion to help small businesses succeed. They grew up in small businesses that their immigrant parents owned. For them, it’s deeply personal. Their history together demonstrated that passion, in previous collaborations. Those are founders who will see the plan through.
Most of the dozens of founders we’ve invested in so far wear their passion on their ironic tees.
To Become an Expert, Fill Your Passion
“What you read when you don’t have to, determines what you will be when you can’t help it” —Charles Francis Potter, professor
Passion is a kissing cousin of expertise. Where one goes, the other tends to follow.
Passionate founders tend to become experts in their field. They put in the 10,000 hours—except for them, it feels like milliseconds; they can’t get enough of them. Or if not 10,000 hours, then 10,000 iterations of their product, as Angel List co-founder Naval Ravikant writes.
If you find yourself spending most of your waking hours focused on something—which is your passion—eventually you will become an expert.
It doesn’t take an AI-assisted robot to figure out why expertise is so important to us. We invest in data-fueled startups using new technology to solve an industry’s biggest problems (read: "The Automated Farm"). You can’t do that without a formidable amount of specialized expertise in technology and in the industry you hope to disrupt.
Take for example Cargomatic, which we describe as Uber for trucking. Founder Brett Parker grew up in the trucking logistics business; it goes back generations for him. His family knows trucking—they live and breathe it. They are experts. They know the industry better than anyone coming in cold ever will. They added a technical whiz to the team and became unstoppable Mack.
The same holds true for Rigetti founder Chad Rigetti. That was a 100 percent founder bet based on our belief that Chad was an undeniable expert in quantum computing—credentials from Yale and IBM helped bolster the case—and could develop the technology he envisioned. He came across as passionate, knowledgeable and trustworthy. He spoke from a place of authority and convinced us he could back it up.
Ability to Execute
“There are three types of people: those who make things happen, those who watch things happen, and those who wonder what happened.” —Nicholas Murray Butler, Columbia University president
The last got-to-have-it quality we look for in a founder is the ability to execute.
Silicon Valley is fast-moving superhighway of innovation with sudden stops that zigs when you think it should zag and zunks when you think it should zoink. Plenty of carnage gets left in the wake. Founders must have a clear vision for what they want to accomplish and the leadership to make it happen.
Just how much proof of execution you need to bring to us depends on your stage.
Colin, with Orro, turned up to our first meeting with a prototype that was laughably large. So large, even the giant from Jack in the Beanstalk would have scratched his head thinking it wouldn’t fit into the light switches throughout his house. And yet somehow, Colin convinced us he had the vision to iterate on the product to make it fit into a more standard 4-inch-by-2-inch light socket.
We took a big bet on Colin and, sure enough, he is delivering on his vision. For other companies/founders, we may need to see a product further in its development. We always need to see some development progress whether hardware or software.
Now Prove It
Keller Rinaudo with Zipline, makes automated delivery drones. Keller showed us shaky cellphone footage of a hastily-put-together VTOL drone with limited autonomy (he could summon it back to him with an iPhone). It wasn’t the stuff that screams innovative disrupting unicorn-in-the-the-making.
But unicorn-in-the-making Keller was. And we’re sure glad we made that bet.
How did Keller convince us? He had a plan. Since autonomous drones still weren’t even legal in the U.S., Zipline planned to go to Africa to get flying hours that the FAA eventually would require for licensing. This would help develop and mature the technology, while also giving the company a strategic advantage: Zipline would amass thousands of flight hours while the competition waited for the FAA to move. He had a team. It was built around the major challenges the company would face. He even had a lobbying strategy. Keller had thought through the 10,000 steps he would need to take to get to where he told us he could go.
We became believers. We cut the check.
Where We Come In
We meet with 100 founders to find a single PEA. When we find one, we are quick to move, join the team and roll-up our sleeves to do whatever we can to help our Founders and their teams reach the goal we are all striving for.
We’re early-stage investors that love working shoulder to shoulder with our founders, we excitedly ask:
“How can we help you with product-market fit, to get you to your next big milestone?”
We offer our suggestions of other value-added investors to join us in the journey, we add our advice on how to learn from the bumps we’ve seen on this road we’ve traveled hundreds of times with other PEAs
Before we begin, we lean in and ask:
“We want to help you see your vision through and in the process create a huge company that produces 100x returns for shareholders. Do you have the gas in the tank to go after an opportunity like that?”
About the Authors
Ash Patel and Mike Marquez are co-founders of Morado Venture Partners, a seed venture capital firm dedicated to capturing investment opportunities in emerging technologies and data-fueled businesses.