[The Logan Bartlett Show] The Legendary Mike Maples: What Makes Startups Win & The Future of Venture Capital

[[Mike Maples]] is an 8x Midas List investor and founding partner at [[Floodgate Fund]]. In our conversation, we dive into his latest book, "[[Pattern Breakers: Why Some Startups Change The Future]]." Mike shares his frameworks on how top startups beat incumbents by redefining categories, and he reflects on his worst and best decisions. We also discuss what the future of venture capital may look like over the next decade - here are a few favorite takeaways on what makes outstanding startups from one of the industry's most influential names.

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Logan: Mike, thanks for doing this.

Mike: Thanks for having me. It's a pleasure to meet in person. Kind of crazy we happen to be here.

Logan: I know, I know. Well, I've enjoyed reading your book and obviously been following your career for a long time. I'm curious, by the way - did you grow up in Austin?

Mike: I lived there for about 10 years. I suppose I've maintained the Austin draw. I was born in Oklahoma and all my relatives were from Oklahoma, so I suppose that was kind of the predominant influence.

Logan: Did you ever move to Washington though?

Mike: I never moved there. My dad worked there for a couple years when he was at Microsoft, but by then I was in college.

Logan: Well, you have a distinct and profound voice for podcasting. I'm excited to do this. So "Pattern Breakers" - as I mentioned, I read the book on my flight out here and really enjoyed it. Having been in this industry and studied it for 12-13 years at this point, it articulated a lot of things I maybe have intuited or haven't really thought about. So I appreciate you doing this. I think anyone listening, as we unpack it a little bit, I would encourage them to buy a copy. I don't always recommend books people are reading, but certainly for venture investors it definitely helps frame a lot of the changes that have happened over time.

Mike: Well thanks for just taking the time to read it. I just want the ideas to get out there, so it's great.

Logan: So what was the impetus to write a book?

Mike: Well, this will probably resonate with you a lot because you're actually a practitioner of this, but a lot of the stuff I see about startups and venture and case studies feels too packaged, too much of a good fit for explaining something in hindsight. That hasn't been my experience at all in venture. My experience has been incredibly wild - these companies, even when they work, are incredibly broken on the inside and screwed up. There's decisions you could go right or left and it's not obvious at the time, and it's not even obvious sometimes that you made the right call. There's times where but for a gust of wind it would have failed, and other times where the one you thought was most likely to succeed goes nowhere, or they did all the right things except they failed.

So the beginning of the exercise was: should I just retire before I get exposed? I'm a big fan of Nassim Taleb's books, so "Fooled by Randomness" talks about this notion of the lucky fool. I thought maybe I'm a lucky fool - like 85% of my exit profits had come from pivots. Odeo turned into Twitter, [Justin.tv](http://Justin.tv) turned into Twitch, all these companies. I was like, what's going on here? Am I just lucky? Is this just random? And if that's the case, I should stop before it catches up with me.

Logan: [Justin.tv](http://Justin.tv) became Twitch ultimately. You invested in that business in '06-'07, right? And you actually forgot that you had any stake because of... and we've had Emmett here on the podcast before so we sort of talked through the Twitch journey, but it split into what, Social Cam and then Twitch?

Mike: Yeah, so it's the whole thing is completely wild. So I'm sitting there, I'm getting pitched by the guys from Weebly, and this guy walks into this coffee shop and he's got a baseball cap and he's got this camera with wires going into a backpack. I remember thinking that's a pretty weird looking setup. He starts walking in, and then David Rusenko goes "Well did you get your email from us earlier today?" and I'm like "What are you talking about?" and they're like "Well we're friends with this guy Justin Kan and we think you're going to like him. Is it okay if he pitches you?" So it's like literally he's walking up to our table and he sits down and he looks at me and I'm on his laptop because his camera is looking at me from his baseball cap and he says "I'm going to do a 24/7 live reality show of my life" and I was like "That's the dumbest thing I ever heard." And so that was the beginning of Twitch.

And then you're right, like about 5 or so years later they decide to pivot into two companies - Social Cam and Twitch. And then Social Cam gets bought by Autodesk for $60 million and I just figured that was the company. So I didn't have Twitch on my financial statements, I'd just kind of forgotten about it.

So that was part of the genesis of this idea too - I'm like, what business am I even in? I just made 85 times my money on this Twitch deal and forgot I was a shareholder. And I have to tell my LPs we got this windfall - should I restate my financials? And all this stuff. So that's when I started to really question what I really knew about this and what was random and what was wild and what's understandable.

Logan: So in the book you go through and lay out some different principles or frameworks. I don't know what you would call them - what would you say?

Mike: I would say that fundamentally what I concluded was that a startup capitalist is a different type of capitalist, and so startups create value differently. When Buffett and Munger talk about companies, they talk about companies that persistently compound and have competitive moats and different advantages, you know, like Hamilton Helmer's 7 Powers and that kind of stuff. Startups don't have any of those things. Startups create value, it turns out, not by compounding but by changing the subject.

So what I started to realize is that the startup capitalist creates value differently in the economy and they harness different powers. The corporate capitalist harnesses the types of powers that facilitate persistent compounding of advantages. The startup capitalist harnesses powers that turn things upside down, that deny the premise of the current rules, that break the patterns. And so then that led to this idea of pattern breaking - the idea that startups make things happen by breaking the patterns rather than following them.

Logan: And so you lay out - so there's inflections, there's insights, there's ideas, and movements are sort of the big four, right? Maybe we can use [Justin.tv/Twitch](http://Justin.tv/Twitch) or Lyft/Zimride as two comparative examples of what inflections might exist and then how it kind of derives from there. So inflections - you have a very technical definition of that. What is an inflection as you think about it?

Mike: Yeah, so an inflection is a specific new change event. It should not be confused with, say, a trend. For example, an inflection that enabled Lyft was the iPhone 4S had an embedded GPS chip. Inflections are used in other fields - like in math, an inflection could be the turning point where the slope of a curve changes. I like the term inflection because to me it really does represent a turning point, and it's a turning point in the capacity to empower people in a new and profound way.

You could have had the idea for ride sharing before the iPhone 4S, but it wouldn't have mattered. You could have implemented a system that embodied that idea. But the iPhone 4S, for the first time, it was possible to locate people algorithmically where their phones were. So now riders and drivers could act like host and guest in Airbnb. So now for the first time you could offer a new type of empowerment.

So inflections are the weapon that the startup founder uses to play an unfair fight. Business is never a fair fight, and the incumbents fight unfair by default. So the startup needs a way to fight unfair, and the way they fight unfair is they use inflections to wage asymmetric warfare on the present.

Logan: Is an inflection kind of the answer to the adage of the "why now" when you're investing in a company? Is that a fair way of looking at it?

Mike: I think so. I think that was the most important thing that we discovered, or the most important takeaway that we had. Like most of the founders I would try these ideas with, they would like certain ideas, but the thing they found most profound about it was inflections answer the "why now" because it talks about - it's one thing to say digital cameras are getting better and that enabled Instagram. It's another thing to say the camera got good enough specifically at a specific time that it became the camera that people were willing to use to take most of their photos most of the time. And that before that time, Instagram wouldn't have been good enough to make you want to share a bunch of airbrushed photos, and it wouldn't have ended up having the type of success it had.

But like, it just - there was that turning point, that window of time when it all of a sudden was good enough. And so that was the - I think that "why now" is probably the hardest variable in startups to figure out. And so I think one of the reasons people were enthusiastic about the notion of the inflection theory was that it was an explanation for how to get the "why now" right.

Logan: Inflections don't necessarily have to be purely technological in nature. I mean, in the book you mention a bunch of social ones, and Brexit as an example of like a social one. I guess, can inflections also be government changes as well, in the circumstances around that?

Mike: For sure. So an inflection is something - it's a change event specific in time and it creates a set of conditions for people to change how they think, feel and act. So technology is the most obvious type of empowerment for that, but you're right. I mean, the shelter-in-place laws for COVID - so all of a sudden you could do telemedicine visits across state lines. Well, that creates a specific empowerment even if it's not a new technology, because now all of a sudden doctors can have telemedicine visits that they couldn't have had before and they get reimbursed. And similarly on the patient side.

So now what ends up happening in a situation like that is people who've never done a telemedicine visit before suddenly are like "Hey, I think that's kind of how I want to do it most of the time." And so now all of a sudden the world goes through a permanent state change in terms of what people believe and how people are willing to act and behave in certain situations.

Logan: And if no one changes behavior based on an inflection then it doesn't matter, right?

Mike: Right, yeah. And it's like, that's one of my favorite things about great founders - just because you have a power doesn't mean you know you have it. So the thing that's sitting in our pockets might enable ride sharing, but most of us don't know that. Most of us are just following the day-to-day patterns of how we think and feel and act.

One of my favorite examples from the past is the wheel. The wheel used to be mounted horizontally to make pots, and some guy figured out that you could mount it vertically to move wagons and transport things. But it was like over 500 years, and the power was there all the time. So one of the things I find really inspiring about inflections is they're all around us all the time. It's just that most of us aren't looking - most of us are doing the same thing we did yesterday and we're going to do the same thing tomorrow that we do today. But occasionally a founder is an outlier and they see the implications.

Logan: Do you think all great - would ultimately become ideas and then movements, which we'll talk about the specific definition of those, but ultimately companies - do you think all great companies harness some inflection on the journey? Like is it a prerequisite for success?

Mike: I think it is the best explanation I've found for why startups win instead of incumbents. Incumbents may choose just not to react to a startup ever, that can happen. But for the most part I believe, and here's why - there's two ways to look at the future. One way is to forecast the future, and a forecast is a projection forward from the present. So a forecast says that the future is going to look like a continuation of the present but changing over time.

What a great startup does is it backcasts, and it says "I have to start with the assumption that the future will be radically different" by definition, because if it's an outgrowth of the present, the incumbents have the advantage because they've defined the rules of the present. So what I need to do is imagine radically different futures and work backwards.

And so the reason movements matter is you're a founder, you're in the future - maybe you're in a valid future because it harnesses inflections, but you're sitting there by yourself. And so you have to bring people with you into that different future of your design. And so that's - movements move people to that different future of your design. And you have to move the right people and not waste time with people who won't move.

Logan: Maybe let's lay out the other definitions and then I'm sure we're going to go in a ton of different directions from here. So after an inflection is an insight - what's the definition of that?

Mike: So the way the mechanism works, as you point out - there's an inflection and that comes external to a startup, it comes external to any company. And then the insight is where the creativity of the founder comes in. It's kind of like the "so what?" So if the inflection for Lyft was the iPhone 4S had a GPS chip, the insight was "Oh, that means you could do Airbnb for cars." So they had to connect the dots and come up with something that would provide radical empowerment for people.

Now the insight should also be non-consensus and right. This was another thing that was important, and I actually learned this initially from Andy Rachleff at Benchmark. But now I realize where he was coming from - human beings are conditioned to like things. And so if too many people like your startup idea, it's too similar to what they already know, which means it's an outgrowth of the present. And so the best startup ideas tend to be polarizing - they tend to have a set of people who don't like it or think it's kind of meh or they're hostile to it, but then there's a set of people who are like "Oh my God, where have you been all my life?" And those people co-create the future with the startup.

So the insight has to do two things - it has to harness inflections, but it also has to be non-consensus. Because you can't - only by being radically different can you make a radical difference. And so you need that insight to be different enough.

Logan: And then how - in the Lyft example, how is the insight different than the idea? Like where - the idea would have been the ride sharing app itself, it would have been...

Mike: So but you know, Lyft didn't start out as Lyft - it started out as Zimride. It was a corporate ride sharing service. And so there are plenty of products that start out - you know, Uber was the same way, started out as UberCab. So there are a lot of products that start out with a correct insight, but the first implementation of the insight's wrong.

[Justin.tv](http://Justin.tv) was like that - [Justin.tv](http://Justin.tv) was enabling streaming, but it was the implementation of streaming, i.e. letting people broadcast their life, was not as powerful of an implementation as the ability to let gamers stream.

Logan: Well let's walk that down from your framework. So the insight was, hey, broadband connection and CDNs and all this stuff would enable streaming in a way that wasn't possible in the past. That was the insight - or sorry, that was the inflection that was occurring around there. The insight at the time was okay, I'm going to be the first and best customer for this going around with TV, you know, streaming myself in real time. Is that right?

Mike: I think so. And I think the other insight that Justin had was that lots of people wanted to be internet famous. Like Justin wanted to be an influencer before there was a word to describe influencers.

Logan: Yeah. And so then the idea I guess then was hey, I'm going to be the first and only or main reality TV show on all the time. And it actually evolved over time and actually let's do it for video games I guess was the initial use case of it, right?

Mike: Yeah. And that sort of leads to the third part of it which relates to the insights, which is - I like to ask the question "Is this from the future?" And so Justin was living in the future. Justin was trying to build the thing that he wished he had for himself. Or well, Justin and Kyle and Emmett and all these guys.

It reminds me a little bit of Marc Andreessen when he was working on the Mosaic browser for the internet. He was tinkering with the technologies of the internet, but he didn't know there was such a thing as a digital superhighway. Like all Time Warner and AT&T and all these guys, Microsoft were all fighting over who was going to build it. And Andreessen's tinkering with these new technologies and he had a beginner's mind, and he's trying to make the internet immediately more useful for him. He was building the thing that he needed to make the internet work.

And so this is a really important thing that we learned was that the best startup ideas come not from trying to think of a startup. When you try to think of a startup, you orient yourself into the present - you put your footing on the ground of the present. The best startup ideas come from living in a valid future and then noticing what's new about it, getting your hands dirty with it, and then building the stuff that's missing in that future.

Logan: I guess in living in the future then, as you think about it, should founders pick some point - because future by definition is ambiguous, right? It's hard. Should they take some trend and bring it to its logical conclusion? Like I think of Mike Speiser and a lot of the things he does from an incubation standpoint, and it seems like he takes "Hey, cloud is going to be ubiquitous and therefore we're going to need a new cloud data store" and that's where we should go, we should run to this point that hopefully the market will catch up to. Is that the best way of thinking about it?

Mike: Well, so by the way, I think Mike Speiser does a fantastic job of this. And the thing that's so amazing about Speiser is it's not like he hides what he's doing - you see him coming a mile away. He says "Okay, flash storage is going to become a thing. I'm going to find the best storage architect I can. Oh, it's this guy who's the CTO of Veritas. I'm going to ask him if he can do a flash storage-centric pure play enterprise solution. And don't worry, I will organize a company around you, but would you like to build that thing?" And then he says "Yes, I can build that thing."

So then what does he do with Snowflake? Same thing - ETL data warehouse of the cloud. But it's like Speiser has time and again identified important inflections in enterprise computing and found the people who understand what's new about it and who have the ability to build something that's credible around it.

So that's a way to get to the future. I think that there's a few ways I've noticed people go to the future. One is they work with lighthouse customers. So when I was at Silicon Graphics in the early 90s, Ed McCracken coined this phrase "lighthouse customers" and I love that term because a lighthouse customer shines a light like a beacon through the noise. And so a lighthouse customer is not necessarily a big customer, they don't necessarily pay you that much money, but they have the clearest vision about the future.

So like when I was at Silicon Graphics, one of those was Industrial Light & Magic. And so I was selling computers to them so that they could make movies like Terminator 2 and The Abyss and Jurassic Park. And you started to realize if we can make Industrial Light & Magic successful, they're just going to lead us to the promised land because all the problems they solve are going to be the problems that everyone in Hollywood wants to solve someday, which turned out to be true.

Okta was this way with identity management. Todd McKinnon was VP of Engineering at Salesforce, he knew all the early customers of the cloud and so they trusted him. And so like, this is where authenticity plays a big part. Todd McKinnon was a very authentic entrepreneur to pursue cloud identity management. Like two kids aren't going to drop out of Stanford - Justin Kan's not going to build that company. But Todd McKinnon's not going to build Twitch, or he's not going to build Twitch because first of all he had a wife and kids and he's not gonna have a live 24/7 broadcast of his life.

And so there's this - the founder-future fit is about: is the founder intrinsically motivated to pursue that future? Do they seem well-suited to pursue it? Do they have the right network to pursue it? Because they have to do two things - they have to notice things other people don't notice before they do, and they also have to convince early believers to believe what they believe. And if they have this authentic match to the future, that's far more likely to be true.

Logan: Yeah, it's a - the founder being meant - founder-future fit. I - someone once said to me Brian Chesky could never be the CEO of Tesla and Elon Musk could never be the CEO of Airbnb, which - it's interesting. We hold all these CEOs in some canonical light, but in truth they are perfect for the companies that they ran and their ability to switch to some other industry or some other set of circumstances probably aren't there.

Mike: Yeah, and so it kind of comes full circle on what you were getting at earlier. The best founders have this match to the future because they're genuinely interested in it. They're interested in the way that Einstein was interested in relativity or that Newton was interested in gravity or Picasso was interested in cubism. A lot of times they stumble into these ideas.

And the reason we use non-consensus and not contrarian is quite often they're just thinking for themselves and they just notice something that other people aren't noticing because they're pushing the envelope of something they're interested in. Most people would think they're wasting their time, but they're just obsessed with it. And it's with the obsession with what's new about it that opens a fractal of new understanding.

Logan: And the point there on non-consensus versus contrarian is it that contrarian, you're accepting the status quo in some ways or you're positioning yourself as an alternative to that?

Mike: Yeah, yeah. The problem with contrarian in my view is that you're being contrary to something, which is another form of conformity. So if you have a teenage kid and they decide as an act of rebellion they're going to dye their hair blue just to offend you as a parent, they're not really being independent-minded - they're just conforming in a different way. They're reacting to something else rather than proactively discovering something.

And so non-consensus means - you know, most of the great founders that I talked to, they feel almost guilty that they got the secret. So the secrets about startups aren't about being contrarian - secrets are earned. Secrets are earned by founders who explore unexplored futures and they identify what's missing about the future. And it's in the process of building what's missing in the future that uncover these insights.

Logan: So we sort of laid out the framework, and then the movement is the ability for the founder to carry people or drive people to the future?

Mike: Yeah. So so far all the stuff we've talked about is about thinking different. So the first thing we need to be a pattern-breaking startup is a pattern-breaking idea. And a pattern-breaking idea has to be something that avoids the comparison trap, that has never been seen before, that can't be reconciled with what's come before, and leverages insights and inflections and comes from the future.

But okay, now we have that pattern-breaking idea - we've got to get real people to do something. And so we have to move people to that different future. And so the next set of things that we focus on are the pattern-breaking actions. Some of that has to do with creating movements, some of that has to do with storytelling, some of that has to do with just being genuinely disagreeable in the right cases. But like, a startup is a fundamentally provocative and disagreeable act. And so we have to get people to move from a present they know to a future that's distant, that's unknown, and that's unsettling. And who's going to do that? Who's not going to do that?

Logan: So I want to talk through some different examples that you reference in the book, but I think it helps highlight the different elements or thinking about this. And not to disparage startups, but Quibi was one of the examples that you talked about in the book. And what was your premise of where that broke down on the hierarchy? And had you stress-tested it, what would you have said to Quibi founders?

Mike: I think that there's a bunch of things, right? But apart from just they spent too much money and did a bunch of stuff that you're not supposed to do, but like I would say they didn't really have an inflection. And so Quibi was more like "Okay, mobile is hot, short-form video is hot, young people consume this stuff, let's combine it." It's more like a Hollywood script meets a startup.

But there was no specific inflection that they were harnessing. And because of that, they had nothing really new to say. It's like they crashed the party of streaming, but they had nothing new to say and they had no reason to be a welcome guest. And so they didn't have anything - people didn't understand why should I pay for another subscription when I've already got Netflix, I'm already using Twitch, I've already got Hulu and Disney+ and all this other stuff. What's this for?

And it can't just be an incrementally better product - you've got to show up in a radically differentiated way to get people's attention.

Logan: And one of the things I thought you highlighted in the book that was a very clear articulation of this is that you want to force a choice and not a comparison. And so to be TikTok - and you know, people have their own political opinions about TikTok, but as a business and product, is very profound. And they leveraged both the algorithmic elements, the mobile, and they leveraged UGC, the fact that we're all now able to create in a way that we had infinitely personalized content to us. Versus Quibi was sort of playing yesterday's game, which is just the traditional streaming wars on mobile.

Mike: That's right. And it's - this idea of forcing a choice. So let's take the original Tesla Roadster. The original Tesla Roadster would not have survived a normal comparison with a Porsche 911. Seats aren't as comfortable, radio is not as good, the fit and finish isn't anywhere close. And so if somebody had said "How does that compare to a 911?", Elon Musk loses.

But people didn't say that. And the reason is that the Tesla Roadster couldn't be reconciled with a Porsche 911. So like, what does Elon say when he does the Tesla Roadster? "Be in this different future with me or don't." But like, there's no middle ground. And people don't - people didn't buy the original Tesla Roadster for the utility value of it versus the 911. They bought it for aesthetic reasons. They believed that Elon had an aesthetically different and compelling view of the future - a world of sustainable energy. And so most people bought it for those reasons rather than the typical reasons they'd buy a car.

You know, I like to say that if everybody's an apple, don't be a 10 times better apple - be the world's first banana. And most people might not like bananas, but all the people in the world who do are going to say "Oh my gosh, where have you been all my life?" And most of the startups that have great success kind of have that energy at first.

Logan: The analogy I've used in the past is in the world of infinite choice, you - it's much better to be Donald Trump in the primary process than it is to be Jeb Bush in the primary process. And you're not trying to be broadly neutral to appealing. Once upon a time, Happy Days or I Love Lucy got made and it was about "Hey, how can we get the 75 million people that have televisions to enjoy what they're watching?" Now we live in this world of infinite choice, and so it's actually about being the number one for not everyone - being as narrow of a sliver as you poss- I mean as big of a narrow sliver as you possibly can and appealing very deeply to that.

And that's one of the analogies - it's provocative in that anything comparing to Donald Trump is sort of provocative, but you don't just want to be incrementally better or broadly appealing, because otherwise you get lost to the noise of everything else. You get lost in the comparison trap.

Mike: And a startup can't win the comparison game because like, no rational customer should want to do business with a company that's 80% likely to go out of business. And so the customer has to be desperate for the empowerment that's offered by the startup. And for them to be desperate, it can't be reconcilable with any other choices they have. Because if the customer has a valid way to solve their problem that the startup's solving, why would they do business with a startup?

So the startup has to offer a solution that's so radically different, that can't be reconciled with anything that's come before, that the customer says "Well, it's the only possible route I have to solving this. It's either work with a startup or don't solve the problem." And so if they - because if they have the ability to fall back to the incumbent choice, they will.

Logan: And ideally you're picking a lighthouse customer that's going to set the pace of where the future's headed. And so this is a tip of the spear into the market where you have very deep product-market fit with a small subset, but that's a very fast-growing subset over time.

Mike: That's right. So like when I was selling to Industrial Light & Magic, the SGI computers could render radically faster than anything else in the market. Like if I had said "Oh well, we're going to ship a new version of AIX and it's going to have faster graphics on the motherboard nine months from now", Lucasfilm would have been like "Well, the movie's got to be released nine months from now. I need this today. And you know, I can't render these dinosaurs with eight layers of skin unless I use exactly this machine and only this machine."

And so that's what you - you don't want to be the best, you want to be the only. And you want to be seen as by the customer as the only possible way they have to solve it. Because you're going to make mistakes - like when you're a startup, you don't have any people, you don't have any money, you don't have a lot of execution capability. So you're going to make a lot of mistakes, a lot of things are be screwed up. And your value proposition has to be so radically different that the customer will tolerate all those mistakes.

Logan: Yeah, I mean that's where the Lyft and Uber versus a taxi - no one was confusing those things. In our portfolio, I guess as you talk I think about DraftKings, and no one was confusing DraftKings with Caesar's Palace, you know, or the sports book that existed there. Obviously went from daily fantasy, but as that market opened up, they were on the slope of the line.

I think that's a - it's a profound thing where oftentimes a lot of our best investments - I'd be curious if you agree with this - the markets are actually super small initially, but they're growing really quickly to some inevitable future state that's going to be much more mainstream than it was before. Because if it was actually a big market today, someone else would address it.

Mike: That's right. If it's a big market today then it's defined by the rules of today. So like, I like to say there's a difference between the TAM - the total available or accessible market - and the TFM, the total future market. And most of the great products I've been involved with defined the markets. And so they created entire new categories and became the category king. And so what they started with was not a high TAM - they started with a powerful inflection that resulted in a future high TAM. And it's the power of the inflections and the empowerment that they provide that create the conditions for the large future category.

Logan: One of the things you talked about in the book - General Magic, which is long lost history. I think there's a great documentary on General Magic - people should go watch it. But maybe for people that don't know, what was General Magic? And then as that relates to the iPhone, or the circumstances around why General Magic wasn't able to succeed to the extent and the potential it had? I thought that was particularly interesting.

Mike: So like, General Magic had a lot of people at that company who were my heroes. A lot of them came from Apple's hardware team. I think Andy Hertzfeld was there, they had Tony Fadell before he got famous - you know, he was about to do some cool things with the iPod and eventually with Nest. Susan Kare, who did the original icons for the Apple Macintosh, was there. So they had - the talent that it assembled was just wild. And all of their ideas about the future were right.

What year is this? This would have been early 90s, this would been like '92 to '95 timeframe. And so they had this vision that someday you're going to have mobile devices that can surf networks and allow you to buy things online. And this is before the internet took off. So like they had these virtual corner stores and stuff like that, and you'd go shopping and you could buy things and you could browse for stuff. Because I think - I think Atkinson may have been there too, the guy that invented HyperCard. So they had all these hyperlink different types of experiences.

They did a big network agreement with AT&T - in fact I think AT&T owned a significant amount of the company. And so if you look back on all the things they were saying were going to happen in the future, they were right. It's just that the technologies weren't good enough to enable the future of their design. You know, the inflections hadn't occurred that would allow these devices to be powerful enough to empower people.

Logan: Emmett Shear from Twitch will say like, you can either be too early or too late. And you never started on the exact right day. And so your job if you're too early is to survive until the point at which - and that's probably true of General Magic. Had they been able to survive, which is obviously impossible, you know, for - it probably would have taken another 8 to 10 years for them to actually get to where they're going. But your job is to hunker down and be a cockroach until that inevitability comes.

Mike: Yeah, like in today's world, a good example of that would be 3D printing. So like I sit there and I say okay, someday trillions of parts will be 3D printed, probably, because trillions of parts are right now used tool and die. But is that going to happen 10 years from now, 5 years from now, 30 years from now? Not sure.

Logan: And so, I think you're exactly right in those situations. You have to be alive when the market develops, when the inflation occurs. And so if you get your burn up too high before that happens, you can end up being out of business and then the person that comes later gets it. I think you share the opinion that I do that no idea is really new and it's sort of like some combination of why you and why now to some extent. I guess how do you think about that? How does that inform your investing?

Mike: I think that's right. So like, my partner Ann and I, we like to say that you should assume that there's a pretty efficient market for startup ideas. And so probably just about any startup idea you can conceive of, somebody's thought of it before. But we also like to say all of it will happen, and so the question is just when is the time for it to happen. And inflections help us increase the odds of being right that this is the right time because it gives us a specific example of a specific form of empowerment for specific people in specific ways. And so now we can all of a sudden timebox the ability of that change event to create the new kinds of empowerment.

Logan: Now as you've reflected on these pivots and 85% you said of your -

Mike: Yeah, I think 80-85% between Twitch, Twitter, Lyft, a number -

Logan: Yeah, a number of these have evolved over time I guess. I know that was sort of the foundational premise of wanting to write the book. But as you now think about how that informs your investing, do you spend less time on the actual idea itself and focus on the inflection and the insight?

Mike: I do, and this is where like the way you invest and the way I invest might be a little different. So when I invest, there is very little data about the customer demand for the product. And so what I realized is that okay, if 85% of my exit profits come from pivots, okay if I pick right there's an 85% chance it's going to change. So I'm like okay, how do I think about that? What am I investing in?

And what I realized was that in a startup, the first product is a reference implementation of the insight. And so when you have a valid insight about the future, you're in the future before other people. You have a first mover advantage into the future and you're showing your product implementation to people in that future. And they're either going to love it right away, in which case you get product-market fit, or more likely is the case, you're talking to the wrong people or your implementation is off.

And so what you realize is that if your insight is correct, the art and science of product-market fit is modifying your implementation or modifying your audience until you get perfect alignment. And so what you're betting on when you bet on a startup is a) do I believe this insight and the authenticity of it to the future? And b) do I believe in this founder's ability to juke and jive and navigate the product to the right alchemy of the right desperate customers? But then also, are they going to have the persuasive skills to convince people to move with them to that future and convince them to deal with the fact that the product's going to have lots of warts and bugs and be screwed up in a lot of ways?

And so that's what you're really betting on. And so when you look at it that way, you start to say, at least in seed, I need to not be too attached to whether this product for what it is is going to succeed or not. I need to really understand the - because like you know, Zoom, it started out as a consumer everyman's product called Sassy. But Eric Yuan had been at Cisco for what, like 10 years working on video conferencing software. So like if you - the signal of him as a future founder was very strong for conferencing, but if you'd focused on what his first product was, you wouldn't have seen the opportunity, you wouldn't have seen what the real investment opportunity was.

Logan: And so as you distill down then and you go through these different frameworks or considerations of investing today and you're looking at this, like do you have predefined inflections that you're currently looking for? Kind of a prepared mind around it? Or do you wait for founders to come in and tell you both the inflection and the insight and then you react to whether or not it's true?

Mike: Some of both. So there will be from time to time we'll see an inflection and we'll say that's really interesting. So for example, everybody knows LLMs are pretty interesting, but for me the question becomes okay, how can you connect that inflection of LLMs to an insight that is truly non-consensus and right and that isn't going to get leapfrogged and copied right away? So that's a harder question.

The other interesting question to me about LLMs is what are the unanticipated types of empowerment they can provide? So like how might LLMs provide more fun for consumers? How might they provide more social connections? How might they provide better gaming experiences? Whatever the case may be. It's not my job as the investor to know the answer to that, but it helps me pose questions.

So I'll be having a dinner with a bunch of smart consumer people and I'll just start asking, okay this feels like an inflection, do you guys agree? You know, in what ways might this inflection empower people? Who does it empower? How many people is that? How powerful is it? So I find that useful, and I use it as a useful sanity check.

And so when I'm - I need to do two things as a seed investor. I need to protect ideas that sound dumb that are good. So I passed on Airbed and Breakfast back in the day and would have made over a thousand times my money. But you know, at the time I saw it, it was a WordPress site and at the time I saw it they didn't have Facebook Connect yet and they didn't have, you know, the host and the guest stayed at the same time and the host gave Pop-Tarts to the guest the next morning and had an air mattress and all this stuff. So you know, you have to protect the ideas that sound bad that are actually good or could lead to something good. But you also want to eliminate the ideas that sound plausibly good that aren't good. So and that's the most dangerous - those are the worst.

Logan: Yeah, and why is that the worst?

Mike: So like this is what happens so often, and by the way I'm not trying to dog on MBAs, but like I'll interact a lot of times with business schools and they'll have some type of a class or program about doing a startup. And lots of people want to do startups, right? So what do they usually do? They say go find a big market, assess that market, find gaps in the market, find white space and build a product for an underserved customer and an underserved market.

And so what will happen is that we'll end up with a plausibly good sounding mundane idea that has a limited upside. So the reason that good sounding ideas are so dangerous is everyone you talk to will say "I could see that." So like Sarah Leary and Nirav Tolia, who are great founders, before they did Nextdoor they had a startup called Fanbase - social network for sports fans. And so they would talk to people, "Hey I got this idea, social network for sports fans." People would say "I think that's a great idea, you know, social networking hot, sports fans lots of them, you know that sounds like a good idea."

The problem is there was nobody desperate for a social network for sports fans. And since there were no desperate customers for that empowering set of capabilities, it was a zero billion dollar market. And so that was the problem they ran into. This is the biggest problem most founders I meet face - they pursue an idea that sounds good on the surface but that is not a valid use of their talent and time. And that was another reason that I worked on this book was I wanted to help founders avoid the avoidable trap of pursuing an idea with bounded upside.

Logan: And so then is the inflection - and you had in here like the inflection stress test - is that the best means of assessing whether or not something's worth their time? Or how do you think about that?

Mike: That's the way I looked at it. I looked at it like, you know, before you take off in a plane you do this pre-flight check. You check a bunch of knobs and levers and levels of different gas and fuel mixture and all this stuff - do I have enough gas to go do the flight? And the reason you do that is kind of like a sanity check. Before you take off you want to make sure that all the conditions are met for you to have a safe flight.

And so what I say to founders is, I'm not in a position to judge whether you have a good idea or not, but I can ask you a set of questions that you can decide if you think it's a good idea. If your idea doesn't embody any inflections at all, it still may end up being a good idea. You might find an inflection later, you know. Twitter found an inflection later in the iPhone which massively improved their ability to take advantage of people tweeting. I mean, they had inflections before that but - so you might stumble into one later. But you don't get to do that many startups in your career, and so you might as well pick opportunities that you think are the most worthy use of your time.

And then the other thing I like to say to founders is you only have to be right once if you're doing it right. So if you're pursuing big ideas with unbounded upside, you only have to be right once in your career.

Logan: And so the Twitter example - we talked about the [Justin.tv](http://Justin.tv) one, but the Odeo to Twitter example. How - one, how did you make that decision to roll forward the capital? Or to reinvest? Was it roll forward or reinvestment?

Mike: Well, it ended up being a new investment. So gave me my money back.

Logan: Got it. Yeah, so it was - and you know, was it dollar for dollar money back and then money over?

Mike: Yeah, so - and I would like to say that I was prescient in any way here, but like I was excited about podcasting. I invested in Odeo. Two weeks after our check clears, Apple decides to give podcasting away on iTunes. And at the time there wasn't an iPhone, and so like 90% of all the MP3 playback devices were iPods. So like there's no way you're going to make money as a legitimate podcasting company, you know, when all the playback devices are owned by them and they give it away on their platform.

So Ev, to his credit, tried really hard to figure out what to do. And after about a year and a half he said, "You know, I just don't think we have a business here." And I won't highlight any specific individuals, but there were individual investors who were pretty disenchanted with Ev and with Odeo. And so he decided it was easiest to just give everybody all their money back, because Ev had made money by selling Blogger to Google so he could afford to just give back the entire Series A. So that's what he did.

And so I was like, "Look Ev, you know, I don't - you don't owe me anything. I'm perfectly happy to just take the L here. You win some, you lose some." He goes, "It'll just be easier for me if you just sign these documents to take your money and everybody takes their money." Well, he got to have all the intellectual property, and they had this side hustle that was working in the background called Twttr. And he even told me about it at the time. He's like, "We're working on this thing on the side. We're going to either call it Twttr or Voicemail 2.0."

And you know, I'm like, "Okay, well what does it do?" And he says, "You say what you're doing." And I'm like, "Okay, yeah, then what does it do?" And he's like, "That's it. 140 characters or less, that's all it does." And I'm like, "What's the roadmap?" "There is no roadmap." "What's the revenue model?" "There is no revenue model." And he's like, "I don't even know if it's a product."

And so then it blows up at South By, and I figured that I was probably going to get aced out of the deal. All of a sudden it became this hot deal in Silicon Valley. And Ev came back to me, to his credit, and said, "Hey, did you mean it when you said you wanted to invest in Twitter?" And I said, "Heck yeah." And he said, "Okay, now's the time." So he showed a great deal of honorable behavior there.

You know, and it was funny because at the time, I told him I wanted to invest in his next thing no matter what it was after he gave me my money back. And then when he described Twitter to me, I'm thinking, "Okay, now I've lost it for sure."

Logan: Yeah, yeah. That's one thing to be wrong once, another to be wrong twice. But by the way, just to replay the history - and it's been a while since I've read Hatching Twitter or whatever was the case - so they went to South By, it blew up at South By, then they came back and what was that initial round that was pulled together?

Mike: I think that the initial round was led by Fred Wilson at Union Square. So I think it was something on the $6.5 million at $20 pre or something like that.

Logan: Really expensive for those days.

Mike: In those days it was. I mean, a lot of people decided not to do it because they thought it was too expensive - some of the angels.

Logan: Yeah, wow. That's a wild trip down memory lane. What did you see in Ev? Because he had lost your - or I guess you got your money back, but it was a zero from an investment standpoint or 1X from an investment standpoint. And it sounds like they chipped away at the idea and it was just kind of the wrong idea. Like, what were the - was it the Blogger success that had given you some confidence, hey this person probably can figure something out? Or what was your confidence in him?

Mike: Well, and it's one of the secrets - I like to say the secret to getting on the Midas List or having success in venture is to be lucky in your first five years. And you know, you think about the two first entrepreneurs I backed were Evan Williams and Kevin Rose. And I mean, that's pretty dang lucky, right? Like I just show up out of nowhere from Austin, Texas in Silicon Valley.

And I remember meeting Ev at South Park and he's describing Odeo to me and I was already doing - I was playing around with podcasting. I had an aux input in my car and I was playing podcasts and I was using the iPodder. It was an open source thing. And so I already knew about podcasting and was excited about it, thought it was going to be a big deal.

And then when Ev described it to me, he was doing one and then this guy Adam Curry was doing one called Podshow. And I just thought Ev was a more authentic match to this idea than - you know, now it's funny because most people thought Adam Curry was going to be it. It was kind of a media idea, all this stuff. But I thought Ev was - Ev just has kind of this je ne sais quoi about expression, you know. And he just knows how to make a product sort of look tastefully good for self-expression.

I mean, we'll see what happens with Medium, right? But even Medium is a well-crafted product. And Odeo was certainly that way. Twitter turned out that way. But yeah, it was a bet on Ev and his ability to make it work.

Logan: Yeah, it's fascinating. So on the force for a choice, not a comparison - I mean, I think it's true of not just technology companies. It's probably true of almost any decision you make in some ways. And I think about venture firms as well. I'm sure you do. With Floodgate in the early days, you were one of the original seed firms pioneering that industry. And so you were not fighting the fight of a comparison versus Sequoia or Benchmark or whoever it was. You were like, "Hey, we do this one specific thing pretty well." Is that -

Mike: Yeah, so in the early days it was - you can't raise a million dollars in Silicon Valley. And so myself and another guy, Josh Kopelman, had this opinion that $500,000 is the new $5 million. And that was around the time that lean startups were starting to happen and all this stuff. And so we just kind of caught the zeitgeist of this Lean Startup movement.

And so there was a change event at the exact same time that there was a lack of funding for that type of company that was being built. So nobody ever said to me or Josh, "Well how does your $500,000 check compare to Redpoint's $5 million check?" or Accel or whatever. I mean, none of those firms had any desire to compete with us and I had no reason to say anything negative about those folks. And so I was like, "Well, you know, if you want to raise about a million bucks, we're your guys." And chances are we didn't have enough money to do the whole round and so I'd call Josh or he'd call me. And so we didn't even think of ourselves as competitors. It was like, how are we going to scare up enough money to do this?

And so it went from that world to now there's over like 2,000 seed funds and there's accelerators and there's angels. And if you type in "angel investor" in LinkedIn, there's more angels than there are founders. And so the world just utterly changed in terms of seed funding.

Logan: How much of the seed funding element was that insight that you had and there was a unique opportunity to force a choice and not a comparison, versus circumstances of like, "Hey, this is what I can go do"? I could get - I don't know how big was your first fund?

Mike: My first fund was $15 million.

Logan: $15 million. So you probably with that, you probably couldn't have gone and led $5 million rounds either. And so how much was circumstance versus just like the unique passion around it?

Mike: It was - I was living in the future almost by accident. So I was running into all these founders. I'd go to the Web 2.0 Conference and - and people forget, right, that there had been this dot-com crash and so consumer internet wasn't really in favor. Like Google had had a huge IPO, but it's funny to think back - like back in those days, people thought that there's only about two or three people who should even be allowed to invest in consumer internet. John Doerr, Mike Moritz, Ram Shriram as an angel, Bob Kagle from Benchmark - that's about it, right? Like there weren't consumer internet investors.

And so there was kind of this bubbling up of stuff happening. You had like the PayPal Mafia doing some interesting things. But all of them were trying to raise like just a million bucks. So if you went to the Web 2.0 conference, you would have seen Stewart Butterfield, you would have seen Evan Williams, you would have seen all of these people. But they were doing these little Web 2.0 startups and they weren't really sure that they were going to be big companies.

And so I was just seeing all these founders where the amount they wanted to raise was like a million dollars and there was no place for them to go. And so like Kevin Rose, right? He had started Digg for $1,500 over a weekend. And so I was like - I would say to him, you know, "Why - what are you going to spend your money on? Marketing or whatever?" And he'd say, "Oh God no, I don't want to spend money on marketing. My servers are crashing all the time. I need to buy more servers." And so I remember saying, "Okay, my checkbook is in my car. I'll be right back." And you know, it was just - I just saw project after project where those were the characteristics of what was happening.

Logan: What is the through line of these founders that are all very different? You mentioned some of the characteristics around storytelling and - what's the term? Not difficult -

Mike: Yeah, disagreeable.

Logan: Disagreeable. What - like these different types of founders, the ones that you found to be most successful and the ones you've enjoyed working with over the years - like what are their traits that they share?

Mike: Yeah, most of them are willing to do things that would seem to be kind of unthinkable. And so for example, like Justin Kan - when I met him, I thought this is a pretty wacky startup. I went home that night to study it and I discovered that he and Emmett Shear had started a calendar company called Kiko. And Google decides to come out with Google Calendar, so it's kind of like Apple doing podcasting, right? They're clearly out of business. And so they decide to sell the company on eBay. And I was like, I didn't even know - like I'd never heard of anybody selling their company on eBay before. But they had sold it for like a quarter of a million bucks and here they are 8 months out of college.

And so I just remember thinking, who does that? And I didn't have any theories at the time to think about investing. It's just instinctively I thought that feels like a good sign for a founder. Brian Chesky had started Airbnb funded it by selling cereal boxes, right? Obama O's and Captain McCain Crunch. And you know, the Lyft guys, they launched a service that they knew was illegal in San Francisco. And so it was like they were just - and they put these big fuzzy pink mustaches on these cars. And it's just like, who does that?

And so time and again I've seen founders willing to do things that just - you know, they don't teach you that anywhere. But they somehow manage to do something that deviates from norms but in a good way.

Logan: Is that a trait that you now look for in some way when talking to an entrepreneur? Like how do you tease that out of people?

Mike: Yeah, and so the reason we want that is we want people who are able to think outside of the box and the existing patterns, right? And so that's a good sign that they can. And so what we want is people who are willing to zig when the rest of the world's willing to zag. Because most of us get rewarded in life in school for having answers that the teacher wants to hear, for doing things that allow us to progress in the current status dominance hierarchy. And the great founders are able to think their own independent thoughts and act their own independent ways. And you know, that's going to be important if they're going to create a radically different future.

Logan: As you think about like the ability to bring people to where the future is headed and establish that movement, the storytelling element of it - storytelling is part of, I think, every job when you get senior enough in an organization. How do you think about storytelling and the traits of a good storyteller? And if a founder or a company has a mission or stands for something, that can be a good story to get behind.

Mike: Yeah, the person who taught me the most about storytelling is Nancy Duarte, who helped Al Gore with An Inconvenient Truth and she's done some work with Benioff at Salesforce. So that combined with watching Brian Chesky later after I foolishly passed - he started to do these narrative storyboards for Airbnb.

And so what I come to realize is that storytelling even happened before the written word. And so you needed to have a way to persuade groups of people. And it relates a little bit to Sapiens by Yuval Harari, right? So you need to find a way to get people to move from where they are to a different place. And storytelling done well taps into your emotions. You know, it can cause involuntary reaction, your heart race, your eyes to blink faster, all these things.

And so what you realize is that the entrepreneur has to be a storyteller because they need to convince all of the early believers that their lives will be transformed by working with the startup. And so like I like to say that a startup founder's like Obi-Wan and the early customer, employee, or venture capitalist is like Luke. And you have to say, "Okay, you're living this boring life on dusty Tatooine. You don't want to be here anymore. You want to be a pilot. You want to use the force. You want to go beat the Empire. You want to rescue the princess."

But usually the hero resists the call at first. They say, "No, I got to work for my Aunt Beru and Uncle Owen for the summer." And so then he comes back and the farm is all burned up and he says, "Okay, forget about it. Let's go." So Obi-Wan takes them, they find co-conspirators, they defeat the bad guys, they rescue the princess, they emerge transformed.

And so what an entrepreneur does is - the world that is is the world of the present. And they need to create a sense of grievance with the present. And then they need to present the world that could be. And they need to present the world that could be in such a way that the initial set of people ready to believe are compelled to accept their call to adventure.

And so like what I learned is that even insights and products play into this. So the hero has to have a reason to believe that he can credibly succeed. And so Obi-Wan, right, goes to Luke and says, "Okay, there's this thing called the Force." Well, that's the insight. And he has this thing called a lightsaber - well, that's the product. And so now Luke's like, you know, with this new kind of magical thing and this new magical tool, I have a credible chance of defeating the bad guys. I couldn't have done it before, but now I believe I can.

So like if you go back to a startup - Lyft. The insight was you could share rides using an app and a mobile phone. And then the product was that. The riders were the initial heroes. The world that is is parking sucks in San Francisco, taxis never come, you can't use your credit card, you can't get people places on time. The world that could be is you just have this cool app, you just zap yourself there, you don't need to bring a car to San Francisco, you don't need to park in San Francisco.

This was where the genius of the mustache came in. So they understood that people might resist the call, right? They might say, "Hey, it's scary to get in a stranger's car. That's kind of crazy." But now when you see a bunch of cars driving around in San Francisco with these pink mustaches, people say, "What's going on with that?" They're like, "Oh, have you heard about this new thing?"

And so we need as founders to honor the fact that customers, early customers, are likely to resist the call. And we need to give those people a reason to, if they're on the fence, to give us a chance.

Logan: Yeah, I think - I think it was in your book you articulated like appealing to a higher purpose and attacking the status quo. And Tesla, I think, is a great example of that. Or Salesforce and the "No Software" way back when is a great example of like building that narrative. Maybe the Tesla - like their slogans and what you see in the car. Maybe use that as an example.

Mike: That's right. So pattern-breaking product has to go to market differently. So like most people when they think of go-to-market, they say "I've got a sales funnel, I've got customers, I've got a marketing mix, and I just need to optimize my marketing spend across various channels and bring people into the funnel and convert them." That's not how pattern-breaking products take hold. They take hold by creating a movement that harnesses the grievance of a minority against the tyranny of the majority - the status quo.

So like movements - most of us think of them in terms of social, you know, Martin Luther King and civil rights. So movement creates this stark dichotomy between the world that is and the world that could be. And they - you know, when you're Martin Luther King, you can't be half in on not being racist, right? Like you're sort of - you either believe people should be judged by their character and not the color of their skin, or you don't. There's not a middle ground. You're just like, "Occupy this future with me or don't."

And so what you do then is you find the people who are ready to move with you and you create that tension between the world that is and the tyranny that that world represents, and the world that could be and the way that you would self-actualize if that world came about. And you focus on the people who are ready to move with you at first. And then over time, what was once heresy accumulates and accelerates and becomes the conventional wisdom.

Logan: I think one of the elements that - until I've gotten involved and worked with more startups or lived this ecosystem for a longer period of time, I didn't fully appreciate is the amount of attack that founders can go on. And just well or poorly intentioned PR or misreporting of stuff and all that. I know you've lived that with different ones of your businesses as well. I'm curious how you think about - is that just an inevitable state of trying to get people to the future? And so founders need to be psychologically ready for all the takedown hit pieces that are going to come their way?

Mike: I think so. Yeah, so I think the irony of being a founder is at first it's frustrating because nobody believes your idea is right, or not enough people do. So most people think you're stupid or wrong or it doesn't matter. And so that's frustrating because like you're not getting - nobody believes what you believe, or not enough people. But then it flips in the other direction. Then you succeed and everybody's like, "Well, who said you deserve to have all this power?" and "Who said you -" You know, they - the status quo has the word "status" embedded in it, right? And so there are a lot of people in the status quo who want to see the status quo persist. In fact, possibly most people.

And so they're gonna - the status quo is going to fight back. It's not going to fight back fair. You know, the taxi lobby wasn't interested in negotiating with Lyft, right? There's no way to reconcile what you're doing with a taxi medallion system. Like one's going to win and one's going to lose and there's no middle ground. And they're not going to just say, "Ah, easy come, easy go. You know, we don't want our business anymore."

Logan: Do you think founders appreciate going in and starting a company that this is something that they're going to - first-time founders that they're going to have to wage war on if they're successful? Or do you think this sneaks up on a lot of founders?

Mike: I think it varies. I think it sneaks up though. And I think this is another aspect of disagreeableness. So just like being non-consensus is a little bit different from being contrarian for its own sake, I think a lot of these founders, because they're not so focused on status by conventional means, it's almost like they just don't even notice that people are upset with them the way normal people would. And so it doesn't occur to them as much that they're going to piss people off. They just kind of do the thing they're doing because they're interested in what they're working on. And so the company becomes a vehicle to actualize the thing they're obsessed with. But a lot of times they're just confused at the hostility. They're just like, "Hey, I'm just doing the thing to make my thing real. I don't see what the fuss is all about."

Logan: Yeah, it's fascinating. As you've reflected on examples like Airbnb or Airbed and Breakfast at the time - I certainly think part of this book is making sure that you've refined your mental model for thinking about those types of things. But as you see those situations present themselves today, what would you have done differently in that moment with Airbnb when he came in and barely had a website that was up and running and it was, you know, kind of funded through cereal box campaigns and all that? Do you think that you would have made a different decision? I assume you hope you would have made a different decision today. But like, what are the reflections that you sort of think about in that example?

Mike: I think that the fact that he was funding it with cereal boxes and just - you know, Brian Chesky, even then you could tell he had a certain X factor to him. I mean, I right after our meeting I introduced him to Reid Hoffman and I was like, "This is somebody you should know. I don't know about this thing, but he's going to do something interesting." And so you just knew that he had that extra gear for sure. Just like I - the first time I met Justin Kan, like he's just a very memorable, compelling persona, right? And you're just like, this is the type of person who's going to attract luck in the universe. And so I should have - I should have leaned into that more.

Logan: What is that? I mean, I realize those are distinct, but what is the reflection that you - or the feeling you get when you meet someone like that? Is it just you know it when you see it? Or is it - does it make you uncomfortable in some way? Or does it usually -

Mike: Yeah, especially on consumer. Yeah.

Logan: Yeah, and what - like what are the characteristics of - I mean, Justin was doing something weird. I assume Brian was - Brian super intense or what - what is - I don't know Brian well enough to -

Mike: No, Brian was just - it's hard to describe. He had a charisma to him. And a lot of these great founders, I find they have a certain type of charisma. And it can vary. Like Evan Williams had charisma, especially when you got him talking about his products. And Brian had a charisma and how he would describe how he evolved the idea and how he would talk to customers and how he was figuring this stuff out. And just, you know, the fact that he was selling cereal boxes - he just - he was just interesting.

He was the type of - you know how many meetings we take, right? And you know, a lot of them you don't remember that well. But he was one you were going to remember. And you know, so I'd say that that's true. But then the other thing I would say is that they just - they have this authenticity to the future that they're trying to pursue. You know, you look at them sometimes and you say, "Man, I can't imagine them doing any startup but this idea." That's the part where it would have still been hard to spot Airbnb, because it still changed a lot. And you know, the inflections were there, but they weren't as powerfully obvious as in some cases.

Logan: Have there been CEOs that you've just sort of - you maybe haven't seen that inflection or the insight necessarily that you've just felt like this person was going to win in some way shape or form? Or do you really always go back to the inflection and the insight and then the person's going to be more of a derivative of that?

Mike: The most recent person I felt that about in a very palpable way where it's played out that way would be Qasar Younis at Applied Intuition. Like I remember meeting him - and part of what led to this book was I was like okay, I tell founders "force a choice and not a comparison" and now I'm one of 20 seed funds. So I'm basically a hypocrite now. And so how do you stand out as a seed fund?

I thought okay, one way you can is you can help the founder evaluate their ideas. You can help the founder stress test their ideas and then they start to know you before there's a company to present. And so in the case of Qasar, we'd spent 14 months together riffing on ideas back and forth before he decided to start Applied Intuition.

Logan: What was Qasar doing at the time?

Mike: So at the time he was at Y Combinator, was the COO at YC. And he was thinking about starting a startup but he said "I'm - there's a certain set of things that have to be true of any startup idea that I'm going to pursue." And he was going through a bunch of different ideas and eventually converged on this idea of the AV simulation software for cars and then broadened from there.

But I felt like he was going to be great, you know? And it's funny because we got to a point where he had the idea and I invited him to just talk to some other folks at Floodgate. And he didn't have slides or anything, he just came in with Peter and they described what they were doing. Then Iris, who tends to be our most skeptical partner, as soon as he left she's like "What the hell are you doing? This guy - as soon as he pitches people everybody's going to want to fund this because this is amazing. This guy's a stud. Like we have to find a way to get into this project." And so that was one where I felt very strong convictions about it.

Logan: So you've been, I guess, in this industry now for - I guess seed investing officially 19 years?

Mike: Yeah, it's pretty crazy.

Logan: And were you doing angel or anything before that?

Mike: No, I'd never made an angel investment in my life before I moved to California.

Logan: Wow. And so you moved to California in -

Mike: Oh yes, I moved to California in January of 2005.

Logan: January 2005. And was it with the intent of raising a seed fund or was that the happenstance afterwards?

Mike: Yeah, it's funny. I knew I wanted to come back to California from Austin and I was hoping to get a job at a venture firm. I didn't know anything about venture capital. I couldn't spell LP. I mean, I knew literally nothing. I'd never made an angel investment.

Logan: What had you been doing right before that?

Mike: I started a company called Motive. So we had just gone public. But I was pretty crispy, you know? We'd started the thing in '97, gone through the runup. We were going to go public in early 2000 and Chuck Phillips of Morgan Stanley was our banker and we were going to - you know, you make the mistake of adding up your shares and the value per share and how much money you're going to make and you just in your mind you're going to be worth that much someday. And then everything melted down and the longest IPO window had ever been closed - like nine months. Four years later we went public.

And so I was kind of tired and I thought about starting another startup but I didn't feel like I had the juice and the fire to do it because you got to will that thing into existence, right? And so I thought I would look at venture. And so I spent some time in California and I was like "Oh man, I've got to come back to California. I'm sitting on the sidelines. Web 2.0 is happening. It's time to get the party started again on the internet." And I just knew I had to do that.

Logan: And so did you actually go - you hung out at some venture firms for a while, right?

Mike: So I hung out at Foundation Capital for nine months and then August Capital for nine months and just sitting in partner meetings.

Logan: Yeah, just doing whatever, right? And just trying to learn the venture business?

Mike: And it was in the course of doing that that I started to see this whole "$500,000 is the new $5 million." And so it was - you know, but I thought okay, maybe I don't know what I'm doing here. I should make a few angel investments. I should see if this works. And so, you know, and at the time I was still living in Austin so I was flying out every Sunday night and staying till every Thursday. And the goal was to find something exciting in Silicon Valley.

And so then this idea, this gap between angels and VCs emerged. And you know, in many ways without knowing it I was embodying some of the behaviors I encourage others - you know, I was living in the future and I was noticing what was missing and paying very strict attention to the things that were being overlooked by most.

Logan: Did you think about joining one of those or a different venture firm full-time? Or how close was the consideration?

Mike: I thought about it, you know. If Kleiner Perkins or Sequoia had made me an offer at the time I would have surely done it. And I give them a lot of credit. So I'd known John Doerr from a long, long time ago and so we started to have some discussions. But you know, I realize in hindsight how incredibly naive it is to think you're going to get a job at Kleiner Perkins when you've never made a VC or angel investment ever in your life.

And then but here's something kind of interesting about Sequoia - a friend introduced me to Don Valentine and so I went and met him.

Logan: Was Don still active at the time?

Mike: Yeah, and you know, obviously you take that meeting. So I'm like, I meet Don Valentine and I said "Hey look, I've already met one of your partners Doug Leone. He said he's not hiring. I'm not here looking for a job because I've heard" - I've heard that Don Valentine could be a little cragly and I didn't want him to say "What the hell are you doing here? We're not hiring. You're wasting my time." So he's like "Well who said we're not hiring partners?" I said "Look, I'm not - like Doug said that and that's fine. I'm totally cool with that."

And so then he's like "Okay, well it's kind of random but you know, do you have any questions?" And I'm like "Okay, sure." So I asked him questions probably like an hour and a half and he was super gracious and would just answer everything. And then his phone started blowing up. He's like "Oh no, I got to - I'm supposed to be in Carmel. I gotta go."

And so he leaves and I just remember thinking "Man, that was awesome meeting Don Valentine." And then by the time I landed in Austin I get a call from Doug Leone that says "Would you ever consider coming up here to meet Mike Moritz?" And so I was like "Okay, things are looking up." So I go to meet Mike and Mike tells me five minutes in "Okay look, I hope we haven't raised your expectations here. We're not going to hire you. You've never made an angel investment or any of this stuff. But like, you never know what's going to happen in the future and stuff."

And so I was like "Oh okay, well then I've got a bunch of questions for you." And Mike Moritz - I mean, another set - just the guy can just turn a phrase. Like people underappreciate just what a gift he has with words and the way he can say something profound in a short sentence that captures the tapestry of like a huge amount of things. And so I just remember just marveling at just his vocabulary and the way he would express himself and just how he could get to the heart of an issue so quickly.

But like, I give Sequoia a lot of props in hindsight. I mean, I'd never met any of those people. They had no idea who I was. I mean, I'm just some rando from Austin, Texas. And but they gave me the time to kind of teach me a few things and you know, at least considered it.

Logan: You know, Motive - locally funded, was it Austin Ventures or who was it?

Mike: It was Austin Ventures and then Jim Breyer from Accel, who I've kept in touch with over the years. He's now in Austin, right?

Logan: He's in Austin, yeah.

Mike: And so yeah, and so we used to when - when we had Motive, my dad has a pretty cool ranch outside of Austin and so we'd have these offsites at the ranch.

Logan: Oh that's cool. So you've been in the industry and seen it evolve from that point in time to now. I guess I'm curious - where do you think from an inflection standpoint, like what are you paying attention to? Are we in a trough with this? Or is AI kind of the opportunity that presents itself? Is it too consensus to really be an inflection?

Mike: Yeah, so one of these days we should spend some time riffing on this a little bit. But like, so here's how I've been thinking about it lately. So occasionally you have something bigger than an inflection - you have a sea change, right? And so when I was a kid, the sea change was mass computation and you had Moore's Law and you had the transistor becoming asymptotically free. And you start to realize okay, in that world power shifts and the scarce resource becomes software.

And so if you'd understood what was happening, your mind would have been more awake to the possibility that companies like Microsoft were going to be important companies, right? Or Intel, right? Because they were providing the commodity puts for mass computation.

So then in the early 90s you have what I now call mass connectivity. And rather than it being animated by Moore's Law, it was Metcalfe's Law. And rather than have a computer on every desk in every home, you try to get all the people in the world as connected nodes. And rather than microprocessing becoming asymptotically free, communications bandwidth becomes asymptotically free. And so rather than software becoming scarce and expensive, it becomes open source and commoditized.

And now the valuable companies are the people that can aggregate the largest number of network nodes and the largest amount of attention among the people who occupy those nodes. And so I'm like okay, that's what happened. Just now, now I think we're in this era - until at that point in time, by the way, you would have invested in Cisco, what - it would have been - it would have started with Netscape, it would have started with eBay.

But this kind of comes back to the question, right? Because people don't remember now, but that early wave of internet companies - a lot of them didn't end up being that persistently valuable. Like the companies we all take for granted today - Google, Facebook, Amazon. I mean, Amazon took off kind of early but like you could have - if you'd invested in Amazon in 1999, you would have lost 95% of your money before you made 300 times your money or whatever.

And you know, eBay was really - eBay was the most successful company of that era in its time, right? And but you had a lot of these companies nobody even remembers now. AltaVista, HotWired, all kinds - you know, GeoCities, all these companies.

And so now we're sort of in this era of mass cognition. Or at least I think we are. And I think that the interesting question is: what types of cognition are becoming asymptotically free? And so then you start to say okay, in what cases can cognition be bundled or unbundled? And in what cases is cognition expensive and rare and it's going to someday be cheap? And in what places is cognition - you know, mass cognition - a complement to humans? In what situations a substitute? What is the relative value of new knowledge in the future versus pre-existing knowledge in the future? All these kinds of interesting questions.

What types of fields is cognition overpriced relative to what it's about to be? And you know, where are there chances to bundle and unbundle it? So that's one thing I've been thinking about a lot.

But then it also brings me back to the days of the internet because I remember Roger McNamee back in those days talking about internet manias and how all these companies were investing insane amounts of money into creating broadband infrastructure. People forget @Home was a company, right? That went bankrupt. But it was one of the hot companies of the era.

And so now you see the GPUs in these, you know, Nvidia clusters, right? And just - it rhymes a lot with those early days of the internet. And so what does that mean given eBay was the one that was kind of contemporaneously successful and others had their volatility around it? Does that mean you're more patient with - hey, just because trends are happening doesn't mean the companies that are going to create equity value out of it are -

Logan: Yeah, so like the - for example, I see a lot of LLMs that are really exciting and I look at the products and I'm like, I could totally see using that product. But I don't see the insight or I don't see why there won't be a flood of competitors. And because I have a set of frameworks for thinking about this, I tend to shy away from those kinds of projects.

Like when - like when I saw Applied Intuition, I'm like okay, not everybody is going to be someone like Qasar who grew up in Detroit, went to General Motors Institute, worked on Google's Maps teams, and partnered with a guy that grew up in Michigan and also you know, was on the Waymo team. I was like, those guys are from central casting. And Sam Altman's not going to be able to just put out an LLM that just like helps cars drive that GM is going to say "Oh okay, I'll take that."

So so like, I thought okay, he has an insight. But a lot of the AI ideas I see, I'm like I could see myself using that product but the problem is I don't see the structural competitive advantage for this company.

Logan: So so there's that. The other thing that rhymes though for me with the internet was - in hindsight you had to hold two things in your head at the same time, right? Like the dot-coms were overvalued but the new economy was actually going to be a thing. Like when you look at John Doerr's pitch at the time on the new economy, all the stuff he said was right, yeah, in the main in the long run. And so and the new economy was underpriced if you had the right time horizon. But if you had a two-year time horizon, you were going to get - you were going to get in trouble. And do you think that's true today? Do you think that's kind of where we are?

Mike: I don't know, but it is interesting. You know, we have a lot of young folks on our team and I find myself a lot of times them saying "You don't understand. We got to be in this space. We got to be in this category. This is where the hot happening new deals are happening. These are where all the hipster AI folks are hanging out." And I'm like, man, this rhymes with what I've seen, right? Like it's like - you know, it really turns out that you don't have to do anything if you're not like convinced that they're on to something.

And so you know, I would say that that rhymes a little bit for me. And the person I talked to about this recently is Hans Tung, who I think is very talented. And Hans is very much like - you know, the AI feels a lot like the early days of DOS, right? That it's like - you know, it's valid, it's probably underhyped in the fullness of time, but the specific - the question you got to answer is: what specific companies are you going to fund today?

Logan: Yeah, and those can't be overpriced or you lose your money. I've only been doing this now for 11-12 years in venture specifically. And any time we've considered altering our investment process - either the underwriting frameworks or how we prosecute investments - because of a - not because of an individual company, any individual company you should be willing to break rules. Hey, maybe you're late to the process, maybe it's competitive, whatever - like you should break the rules around it.

When you're holistically talking about a category and it's like "No, we have to think of it this way because this is the way that these things are now being thought of" - anytime that's proven true - crypto was that way, I think '20-'21 growth investing was that way, there was the chatbots before that, there was mobile before that. Anytime it's been holistically true of a category, it's proven to be a bubble.

And I think it's - it's hard for me to not be so enthused by what AI is doing right now. And it's also hard for me to call it anything but a bubble within the venture ecosystem, at least just with how many people are changing their underwriting frameworks, how they prosecute investments, all these things. Just it - it smells like these frameworks or the process would imply bubble.

Mike: Well, and the other thing is it - it has a set of conditions that correspond to a lot of wishful thinking. So like, a lot of these funds that have been raised are just gigantic. And so what a great time to be funding companies that consume crazy amounts of GPU expense, right? It's - it's - it's appealing to think that that's the way the world is going, that that's the way the avant-garde cutting edge people should think.

Or and you can tell LPs - it's a forgivable thing right now to tell limited partners "We're long AI and we're going to be investing in lots of AI." And it happens to, to your point, conveniently tie to a need for three, four, five billion dollar funds in some cases to like justify it.

And some of these - I think like Inflection is a good example of this - a lot of these I think are just future divisions of big tech companies, company TBD. And so what they're really creating is sustaining innovations that would normally happen inside the big tech companies, but they could just move faster. But their - you know, their economic model as it is right now in many cases is - I don't think viable. I don't think that they're underlying economics are even viable because they're getting these big money investments and this funny money back and forth with credits and things like that.

And so so you've got that issue as one. The other one that I think is convenient for the fact that some funds are pretty big is this atoms-meet-bits kind of startups, right? So like now everybody wants to do defense tech, everybody wants to do atoms-meet-bits. And I'm like - I'm like that'd be great if - and I hope that a lot of those companies succeed. But when I look at the sweep of history, the ones that have succeeded have usually had a founder like Elon Musk who can just overcome the amount of pain and anguish and impossibility.

So I think that there are some startup ideas where the founder-future fit needs to be somebody like Elon. They can't just be right that they can build a car. They can't just be right that they can blast a rocket into outer space. Like Elon probably is going to have to sue NASA along the way. Or you know, in the Anduril guy did have to sue the government, Palantir guys like that. And so you know, the capabilities of the prime mover in those kinds of startups just have to be off the charts.

Logan: And where is the company that gets started and is successful at the peak or at some top point in a market cycle? And so those examples you just articulated of SpaceX, Palantir, and those were started way before this defense tech thing got going. And now they're held in this esteem. And I think part of that is, to your point, the non-consensus element of it and the founder-future fit of those people uniquely had a passion of going after this. And so they were willing to chew glass or whatever it is to will these things into existence versus when it becomes the cool thing, the incremental founder might want to pursue something like this that doesn't have that unique passion. And there's probably three or four other companies that are going to copy them in some way, shape or form and they're all going to try to pull each other down. And they're going to find out that selling to the government's hard.

Mike: Right, going to be like - no, but it's also that - a friend of mine Eric Paley at Founder Collective told me this once. I'm still trying to coax the data out of him, but he said that they looked at the companies that had the biggest exit and the year that they started, and they were almost never popular in the year they start. They were never in a popular sector that year.

So like I remember 10 years ago, direct-to-consumer was all the rage. And it's like this year you just almost can't get a direct-to-consumer startup, right? And this would probably be the year to do one. That's one of the things I think about consumer right now. To your earlier point of talking about like there was only four people who were allowed to do consumer in the early 2000s, and it's funny - it's fallen so far out of vogue over the years. And AI seems to have breathed a little bit of life back into it, but everyone seems to be a B2B investor these days. And it does make me - does make me think that if everyone has decided that that's a good idea, it might mean that now is actually the right time to go do something totally different.

Logan: Yeah, the other one that intrigues me is crypto. So I think a lot of the crypto stuff was just ridiculous, right? But Bitcoin strikes me still as pretty profound. And if you believe that Bitcoin in the steady state is going to approach the market cap of say gold, you're going to have not just that appreciation but you're going to have a financial services industry around Bitcoin. And I look at that and I say okay, can I squint and see that? I'm like - you know, I could see that. Do you think the financial services around Bitcoin would be different than the existing financial services?

Mike: I think that it could be. The reason I think it could be different is - you know, I think there'll be some hybrid stuff where you've got the rails between fiat and Bitcoin. But I think that you'll have dedicated Bitcoin-centric products. Like let's say that I'm Michael Saylor and I'm just unbelievably all in on Bitcoin and now I want to buy a house and I want to get a loan for this house. I'd probably like to use my Bitcoin as collateral for the loan without selling my Bitcoin.

Logan: Yeah, and so there's probably going to be services that get better at that. Is it possible that all the big companies someday are going to want to have some amount of Bitcoin on their balance sheets?

Mike: I think it's reasonable to assume they might. Are there going to be countries, right, that sort of decide to adopt the posture of El Salvador? I'm like - you know, I could see that happening. I could see that happening in a lot of African countries. I could see that happening, you know, in a lot of countries. So I'm like - you know, and if that happens, it doesn't have to move very far for that to amount to a lot of money.

Logan: Yeah, and I think that's probably - I've been historically very negative on crypto. But I think that if what you're saying is centered around Bitcoin specifically and the ancillary services that are going to need to be provided for Bitcoin - or you could even, I don't know, talk me into Ethereum or something. It's when you really go deep in the Web3 use cases that I - it starts to break my brain a little bit or I start to feel like we're recreating things that already exist. But it does seem that Bitcoin has had staying power. And at the end of the day, if people believe it to be worth something, then that's sort of what - everything - it's not like we're using gold and melting it down and you know, for some utility. At this point it's sort of a shared belief that it has value.

Mike: Yeah, and I don't know if you've ever gone down this rabbit hole, but like this - it's like a 14-part interview series with Michael Saylor and this guy - it's a show called "What is Money?" Saylor series.

Logan: No, 14 - 14 Michael Saylor - seems like a very interesting guy. 14 of any Michael Saylor thing, I will not -

Mike: I'll tell you what man, it is really interesting. I mean, the - you can agree or disagree with Michael, but he ain't stupid, right? Like he is a smart guy.

Logan: Oh yeah, and his reasoning is very tight about Bitcoin in particular.

Mike: That's interesting. What about the venture industry? You mentioned a bunch of capital. I think we both probably share some level of cynicism on people backsolving for not giving money back or something and trying to find new avenues of parking capital. I guess I'd be curious just at a higher level - of someone that's both studied the companies as well as lived the industry in a lot of ways, I'm curious just your zoomed out view of where we are today in the industry.

Mike: Yeah, I think it's hard to say for sure. You know, I guess I used to think okay, there's this cycle of capital where there's way too much and then there's too little, there's way too much, there's way too little. It's like a sawtooth. I think there's still some truth to that.

The thing that I think is a permanent change is just increasing competition and increasing efficiency. Like I just think that when I first saw venture capital, it was a very inefficient market, very little transparency. And now I think there's a lot of noise, but I also think it's harder than ever to find inefficient gaps in the market. And in the end that's how we got to make money - we've got to find stuff that other people haven't found or there's no way to outperform the index. And so to me that's the thing that's gotten permanently harder.

Logan: It's - I mean, I think every market probably moves to more efficiency over time, at least I would hope. And so one of the questions I guess I would ask about the sawtooth is - I agree that capital, there's inflows and outflows. It seems like that's maybe become something of a consensus view. And so in reaction to that, it feels like the limited partners are actually being far more even-keeled and less manic in their dollars because they recognize that this year, this year -

Mike: Yeah, yeah.

Logan: And it might be another three or four or five, six years before we feel the full brunt of the implications around that. I haven't seen it totally be the case with the number of funds that are still raising four, five, six billion dollar funds in 2024. Or even like, it doesn't feel anywhere near at least what I have studied to be true of '02, '03, '04. And all of that - I'm curious your perspective on that.

Mike: You know, I think that the thing that's pretty different - so in the late 90s, early 2000s, you had these big funds, not as big as what's happening today, right? And a lot of them ended up giving most of the money or half of the money back.

Logan: Yep, we did it.

Mike: Because back then the tech industry was still kind of its own thing. And you know, you just - the value - it was just so comically overvalued that you couldn't think about it any other way. It really was a mania.

Now I think there's a strong argument to be made that tech is embedded in the very fabric of the economy. Probably started in the late 2000s. And so like if I'm going to steal manna and say it's justified to raise these giant funds, I would say tech is the most important industry in the world. It's animating all factors of the economy. If you're an LP and you want exposure to tech, you have to be in those funds. And it's like some of those funds will do well, some won't do so well, but like you have to be - you have to be at that table in that game if you really care about tech as a permanent fixture of your investing strategy.

And I can see the logic in that. Like I don't think those funds will necessarily have the highest cash-on-cash returns, the highest IRRs, but they might outperform S&P.

Logan: I've heard some LPs refer to it as venture venture alpha versus venture beta depending on what funds they're participating in and how they think about it. They're like "Hey, we're looking for beta in this case" or "No, we're just - we're actually seeking alpha in this case", which is - I never heard that adage before. But whether or not they really think it's going to outperform the median or the return of the industry.

Mike: Yeah, so so it's interesting, right? That - because one interesting question is: are there an increasing number of amazing exits happening year after year? I don't see a lot of evidence. Like I think for the most part there's 20 to 30 amazing new companies created each year in the US. And I don't think that that's varied a whole lot through time. I think it may be an expanding universe but it's linearly expanding, right? Not exponentially.

Logan: It's up from 18 10 years ago to 24 this year, exactly.

Mike: And you know, in the - you and - you have these exit windows where there's these acceleration times, you know, from like '98 to 2000, from - you know, we just went through one. And probably 80% of the profits of 15-year window are made in that. So you know, in many ways you could argue the secret of the venture business is have enough good companies in flight when that - you know, you guys had Snowflake and if it's like - if you have enough of those, like it almost doesn't matter what you did to get out.

Logan: Yeah, it's funny. I joke that like all my friends that I grew up in venture with are now running firms. And it's like "Oh well Logan, that you pick great firms, friends." It's like no, actually I got going in 2013-14 and these were all the associates sourcing software deals at their respective firms. And it's kind of this Fooled by Randomness like survivorship bias of these people rising in the industry. And the consumer people that were at these firms are now operating or have long pivoted to B2B or something else. And so it's just having the unique luck of the moment in time.

Mike: Yeah, it's funny because this would be a great time for someone to start a career in venture with an eye towards having a bunch of companies that come of age in that 18-month window 13 years out.

Logan: Sure, right. And it's like - and why is that? Maybe profound - I've met so many people who entered the venture business from 2019 until say last year, and they're going to have to unlearn most of what they learn. Like the stuff they learned that they think is true about venture is the opposite of like what they should be thinking about. And so they're actually worse than - they're worse off than being naive.

It's interesting - the number of people that are the - I think the iconic investors in the industry that got going after the bubble. And some of that is hey, they - if you rode the bubble then you probably got fabulously wealthy and you've retired since then. So some of this might be some episodic, you know, whatever exits that ended up happening. But I do think it's interesting - yourself, my partner Scott Raney, Jeremy Levine, Peter Fenton, Neeraj Agrawal - I mean, we can come up with a laundry list of names of folks that are amazing investors that got going in '01, '02, '03, '04. And it's probably yes, some right age and whatever all that stuff is, but it's also probably learned a lot of good lessons coming out of the internet bubble.

And I wonder if we're going to see the opposite of that - of people that have been around in 2021. And I learned a lot about this from Breyer. So Jim Breyer used to tell me this - this is a long time ago, it's like 2000-2001 - that like navigating bubbles is part of the job. And it's like no, knowing when everyone in the present is too excited and hyped up - like you need to find a way to exit companies in those windows. And you need to be very clear on the fact that you need to do that.

And I just always remembered that because I remember the feeling in 2001-2002 when I was a founder of like "Oh my gosh, like how are we going to find a path to the light? Like what are we going to do here?" And I think about that a lot when we make our decisions to sell in recent years. You know, it's like okay, this is an exciting company but like it has to be like - it has to be like the best company the next 15 years to be this exciting.

Mike: How do you - do you guys have some distribution methodology or is it case by case?

Logan: We don't have too much of one, but we always - whenever one company starts to become more valuable than the entire fund, we start to say it's important for us to have a point of view about whether we should sell or not, or sell some, sell something.

Mike: Yeah, that's what I've always respected about Fred Wilson specifically. Is I feel like no matter what, they're selling some into the IPO or maybe a little bit before the IPO and just recognizing hey, this is an iterative opportunity. Why not take a little bit of your principal back or whatever it is?

Logan: Yeah, and I think Navin over at Mayfield did a good job of this in the kind of the early 2020s.

Mike: Interesting because here's the other thing - people say "Well that's easy for you to say. How are you going to get out?" But like what happens is - you've probably seen this dynamic - the company is so hot that like if you want to sell, people are like "Okay well you got to do me a solid and sell way more than that." So like you know, if anything it's like you struggle to sell, you know, less than what you end up having to sell.

Logan: Totally, but like you know, and usually when that's happening that's kind of a sign of the top too, right? When everybody - when there's no price that's too high and everybody wants it and you got to sell more than you even want to sell usually.

Mike: I've written down some of the lessons or some of the things and at some point maybe I'll share them of like - this is a sign of a bubble and it's a good - I just did it because I feel like we've gone through a few of them in the last, even, I don't know, 48 months or something. And just there's little things like that that if it's happening, then it's probably a good sign to head for the exits, at least in part. Now the scary part about our industry is, one, the outliers end up paying for the rest of the pattern breakers, if you will, end up paying for all of the sins that we make.

Mike: And two, quite a bit of money is made on the run-up right before the music stops as well. And so getting out early might be missing out on some of that. But yeah, I think psychologically it's a lot better to not be left holding the bag.

Logan: Yeah, I think so. And there are just no easy answers to it, but I do think that it's surprising to me how few people are on a posture of wanting to sell at the time they should be in this industry, right? It's human nature, isn't it? It's just - it's all the things that you learn and think about. You read an Annie Duke book or you read whatever, "Fooled by Randomness," and a Seth Godin book. You read these things and you're like, "Oh, of course I won't fall victim." Like, you read Howard Marks saying, "Well, I pay attention to what people are saying in the present because they get overhyped." And you're just like, "Yeah, he's right."

Mike: Yeah, he's totally right.

Logan: And can I buy some more in that? He's arguing with his son about whether they should buy more Zoom.

Mike: Yeah, it's like you're just watching it play out in real time, and it's just so hard to have the presence of mind. You know, 2021, 2022, you start to say, "Yep, this is the first real year of the 21st century." And like, is permanent change co-accelerated the future? Everything's going to be remote and distributed worldwide and digital. And all this, you know, you start to believe the hype, right?

There are a handful of these moments that have happened, and COVID was one of them. And what it's done to e-commerce sales and just like how we're right back on the line that we were headed on before all this. I think COVID is one of the all-time "Hey, I really don't know."

Mike: The "I can't project the future." And so it's just like you probability weight and you try to hedge a little bit and you go all in where you can. But if you had told me we were going to end up exactly back on the same slope of e-commerce sales that we were in, you know, 2019 was projecting, I never would have bought it in a million years. And here we are right back there.

Logan: So, and if you told me in March of 2020 we were going to have this major acceleration window where, you know, 80% of the profits in venture were going to be made, I would have said, "How's that possible? How is that going to work?"

Mike: What about, um, so there's a lot of young investors that listen to this podcast or aspiring investors. What would you say other than unlearn what you've learned the last couple of years? Beyond that, what would you, if you're giving advice to a junior employee at Floodgate or just someone randomly wanting to get into the industry or already in the industry but trying to think about how to make a career that sticks, are there things beyond reading your book that you would recommend for people?

Logan: Yeah, um, so I spend a lot of time studying Buffett and Munger, right? And I think they have some lessons that are pretty durable. Like one lesson they have that the opposite is true - they say rule one is don't lose money. Rule number two, don't forget rule number one.

In our business, rule number one in seed is don't pass on Airbnb, right? So you fail because of a failure of imagination and a failure of understanding the underlying powers of the startup. But I'd say that the thing that feels really durable is this idea of knowing what your circle of competence is.

Mike: And so for example, I think that I'm better than some at being willing to invest in an incomplete product idea that embodies a powerful insight with a big inflection, right? Like I'm willing to say I'm comfortable with the uncertainty of whether the product's right or not in a case where a lot of people wouldn't be comfortable. And sometimes that allows me to get a better valuation, for example.

But like this idea of a circle of competence, I think, is big. And so it sort of says there are times where you know you have an advantage and you do have an advantage, and then there's every other time.

Logan: One of the ways that we've moderated our investing pace is I have a list of every first check I ever wrote where I made more than 20x. And after a while, it becomes an existence proof, right? Like I'm like, okay, I'm about to write a check for an idea and a strategy where I've never once made money doing that in 20 years.

So does that mean I just need to expand my circle or do I need to stay within it? Usually, I do better when I stay within it. And most people don't know what their circle of competence is. That's the problem they have. And most people don't realize that without having a circle of competence, all you're ever going to be at best is average.

Mike: Because you have - there's no basis for you to be an outperformer if you don't know something the market doesn't know or have access the market doesn't have. And that's one of the things that I've thought about. It's counterintuitive to when you're early in your career to narrow your scope in a meaningful way because you want the optionality of doing other things.

Logan: And so you want the choice of like, "Well, you know, yeah, AI sounds interesting." And then, "But consumer, we'll see how that plays out." And you know, infrastructure software, that's always been good. And you sort of dabble in a bunch of different things.

Mike: And what's hard about that is you never build the full competency in any one of those. And it's going to require you to - like the way I've articulated, I think this is similar to companies - is like pick something that you think is going to be more important tomorrow or in the future than it is today. Become the smartest person you possibly can on that.

And then as your firm or as the industry moves in that direction, you will be there to meet them. And you'll be the AI expert when AI is blowing up, or whatever the case may be. It could be health, it could be digital health, it could be genomics, it could be defense tech, it could be whatever it is, right?

But like if what you were pursuing today as an associate or whatever, principal at a venture firm, is the popular thing, there are more than enough people to go do that. People want to do the popular thing. You should be going over, which is a really hard thing to do.

Logan: It's really hard to tell people, "No, don't focus singularly on AI," or "Go pick some really narrow sub-segment of AI if you want to do that and go really deep there." Because that's going to be more important in the future.

Mike: And it's funny, I now realize how profound. So like when I was a kid, my dad used to always say "Do your best." And a lot of people would say to their kids, "Be the best." But that's not what he was getting at. So he was basically saying that there's only one you, and every day is a gift. You're never going to get today back.

So how are you going to spend the time to honor the gift of your time to be your very best self? Because if you're your very best self, there's only one you. Nobody's gonna be able to compete with you. You're going to be hard to compete with.

But like, let's say that I think Peter Thiel is a really smart guy. He is. If I try to be like Peter Thiel, there's no way I'll ever be as good at it as he is. But like, I have a database of every seed company that I've ever found that you would have made more than 100x on the first check.

And I study those things like a train spotter. And I'll tell a founder sometimes why take my money versus the next seed investors. I'm like, "Put us each in a room, give us a pop quiz on how startups work and how startup capitalism works, and see who knows more."

Logan: Yeah, just see who's thought about it more.

Mike: It's not that I was trying to be better at it, it's just I'm more interested in it. I'm more interested in what makes a great startup. And I want to understand that the way Buffett and Munger would read every Fortune 500 annual report, just because I want to understand startups better than anybody's ever understood them ever.

Logan: And well, and you're reframing the conversation or the consideration set. And so in that Peter Thiel example, I actually think he's done an amazing job of appealing to a libertarian, anti-establishment, even politically conservative, like contrarian type.

Mike: They have, and to those people, which I think if you had asked San Francisco 10 years ago what percentage of entrepreneurs that was, people maybe would have said 5% or 10% or something. And it turns out, actually, as times have changed, it's actually maybe closer to 50% or 60%. Who knows? It's a high percent of the good ones.

Logan: It's a high percentage of the good ones. And to that group, now they've become SEOA, right? And those people uniquely appeal to them. And you can't - you need to pick some lane or some narrowness that deeply appeals to some subset of the population.

Mike: And so when you're having that discussion with someone, if what they want is Peter Thiel and the "0 to 1" and the libertarian and whatever, then you can disqualify yourself from that conversation as well. Because the worst thing is to come second. It's like, because then you've wasted all the time and the cycles and all that, right? Better to get disqualified early on.

Logan: They need to want me because they think I'm like a startup philosopher king, right? Like that's what they need to care about. And you know, you can't be for everybody.

Mike: Exactly. You want to deeply appeal to some narrower subset of people that are going to opt in to you and to you, you are the end-all that they want to work with. And that doesn't have to be - it just needs to be you.

Logan: You mentioned 20 to 30 a year. Like if you get four or five of those, you're - if you get one, keep your fund small. Keep your fund small. You get one of those, you're going to be doing this a long, long time.

Mike: And it kind of goes back to then and the founder-future fit and kind of this idea of doing your best. If you're doing your authentic best, you can't be defeated in that thing you're doing your best at.

Logan: Yes, because everybody in the world is different. Everybody in the world has their own balance sheet of comparative advantages and disadvantages. And so nobody can be exactly like you at the thing you're the best at being you about.

Mike: Yes. And so ironically, the way to be broadly successful is to not pay attention to too much of what everybody else is doing and to be better at tuning into what you can be your authentic best. Picking the single or the things that are the most Mike Maples that you can possibly be and leaning into those.

And you want it to appeal as broadly as you can, but what's most important is appealing as deeply as you possibly can. And that's what domains are probably the easiest way for more junior investors to - they probably won't be able to be the train spotter that you are, write the book or write the "Zero to One" and be the political influencer that Peter Thiel is or whatever.

Logan: You're not going to be able to do that.

Mike: So domain is the one that I tend to tell people to lean into. Now then the question that I inevitably get back is, "What domain?" And I say, "That's not for me." Like, listen, I don't know. It's not for me to decide that. I'll still be able to pivot into that if it becomes the new thing because I have a fancy title at Redpoint.

And so if that becomes true, then - but if you're the associate at XYZ firm, your ability to rise within your organization is going to be threaded to your domain and your knowledge of that.

Logan: Yeah, and I think that a lot of it does. It's what a lot of good founders do is you find an area that is an authentic match to your train spotting level interest.

Mike: Yes, and you just go down the rabbit hole and it doesn't seem like work, right? You get in this state of flow and you lose sense of time and all that stuff. And it's by doing that that you're going to open these fractals of knowledge and find the insights that aren't obvious and that founders are going to instantly magnetize to you because they're going to see that you care about what they're doing more than other people care.

Logan: I think that's the path to the light. And it's not something that you inherently need to have studied in school or - it's just like when you get into it, you find it insatiable and your pursuit of it. That's the way I was with software way back 12 years ago.

Mike: Or I just sort of - yeah, even before you got into VC, I bet.

Logan: Yeah, no, before I got into VC. And I read all the software books, software and hard drive, and I learned all these things. And now it's even easier. You don't have to go buy hardback books like you did way back when. You can go get and acquire guides to steal this stuff down and there's, you know, YouTube transcripts of a lot of these anthologies.

Mike: And so I just think picking a category - and the Acquired guys are a great example of this. They weren't famous people, right? But they just are train spotters about breaking down these companies. And they do it just because they're just darn interested in it.

And you know what? If you look at all their growth, it's compounded and it's grown over time just by them doing it and getting better at it consistently. And it builds on itself. And that's what I think is interesting - there's no shortcuts in this.

Logan: There aren't any shortcuts. And what's interesting is if you look at the people that have grown to be the best at podcasting, for example, they've generally started from no names around it and then they built over time.

Mike: And what's nice about that is when you're at your worst, no one's listening. And as you get better and better, then people discover you and you've refined your product.

Logan: And I know the Acquired guys have thought about that, or Harry Stebbings, or I know Patrick, or Tim Ferriss, or all these people - Bill Simmons. Like whatever industry it is, people generally - and I fell victim to like, "Well, let's get the biggest guests I possibly can on." And it turned out in the early days I was just very bad.

Mike: It's inevitable. It's not even being self-deprecating; it's true. You hadn't practiced it.

Logan: You had a pretty good run though.

Mike: You quick study.

Logan: I'm working hard at it. It's a lot of work. But it is interesting, right? Because all those people that you mentioned, they weren't like Lenny Rachitsky, right? Like who would have thought that 700,000 people want to listen to a podcast about product management? Like you would have never foreseen that.

Mike: Lenny's show is good because he just cares about the subject. And by the way, Lex Fridman, AI podcast - it's easier to start super narrow. And this goes back to the same thing with industries. It goes back to the same thing with startups. Lex Fridman was called the AI podcast. Acquired was only focused on acquisitions. Harry Stebbings was 20 minutes with venture capitalists. Lenny was just product managers.

And you know what you get? You get the opportunity to build concentric circles around it when you build a loyal listener base, rather than starting broad with your own interest, which again is counterintuitive. Like going super deep with product is something that you wouldn't have guessed, but it turns out a lot of people are interested in product.

Logan: Yeah, and the other thing I think that's counterintuitive about it is if you're going super niche at the beginning, if it doesn't amount to anything, you're no worse off because nobody's paying attention.

Mike: That's right. Nobody knows you screwed up because no one listened anyway. So yeah. So like Brian Chesky, right? He would relaunch Airbnb every month, and he realized, "I might as well because nobody knows who Airbnb is. I can just pretend it's a new thing."

Logan: So like if you're doing something that you're interested in just for its own sake, if it doesn't take off, okay fine, you learn something you're interested in.

Mike: Totally, totally.

Logan: Yeah, well Mike, this is great. Thanks for doing this.

Mike: Thanks for putting up with me. A lot of fun.

Logan: Thank you for joining this episode of the Logan Bartlett Show with co-founder and general partner of Floodgate, Mike Maples. If you enjoyed this discussion, we'd love for you to share with anyone else you think might find it interesting, as well as subscribe on whatever podcast platform you're listening on. We look forward to seeing you next week with another great guest on the Logan Bartlett Show. Have a great weekend, everyone.

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