My Investment Criteria:
1. Play the Power Law – Earlier investments will have higher risk/reward, and portfolio variance shrinks as the fund diversifies into more investments. I am highly selective, but I have intentionally built a broad portfolio. Startups are highly unpredictable, and time and again, my early high-flyers have crashed and my stragglers have iterated their way to a breakout. I believe in backing outlier founders at reasonable entry points across a wide spectrum of business models at the edge of innovation. “Venture capital is not even a home run business. It’s a grand slam business.”
2. Founder/Market Fit – These founders are typically not seeking returns or are serial entrepreneurs; rather, they are truly passionate about solving the most challenging problems in large markets by applying unique insights. I judge founders on the content of their character and on their passion for the mission. Why are you uniquely suited to solve this problem at this time? And, why should I care about this problem?
3. Contrarian – I seek outlier founders with unique insights that few can see. They are contrarian not because they oppose the mainstream view, but because they are myopically focused on their independent vision. They anticipate a new world and proactively build to that future to solve large problems. Typically, I can’t “see” their vision initially, but I am drawn to their conviction and narrative in a profound way as I dive in.
4. Monopoly – I look for “zero to one” opportunities and only invest in companies that I believe have the potential to return my whole fund generating 1000x returns – the very elusive Thunder Lizards. Disrupting a legacy market, establishing a beachhead pre-inflection in an emerging market, or adding a unique feature to an existing business model that ignites a stagnant market. These businesses don’t try to be “better than”; rather, they focus on “different” with proprietary power leveraging technology, network effects, or design implementation. The best paths are new and untried.