Fortune: You started Maveron in 1998 with Starbucks founder Howard Schultz, after serving as his investment banker. Its focus has always been on consumer brands. Why?
Dan Levitan: There are lots of ways to make money in venture capital, and there are even more ways to be mediocre. The industry has too much money and too many smart people chasing too few great entrepreneurs. We believed the world didn’t need another commoditized venture capital firm. Our theory was that the operating characteristics of technology companies would be incorporated into consumer businesses in an unprecedented way as technology integrated into consumers’ lives.
We’re sitting in your Seattle offices in what you call your inspiration room. Brag a bit, please, about your biggest wins.
Behind you are plaques for our four billion-dollar companies: eBay, Capella University, Groupon, and Zulily. Potbelly is close, but it’s not there yet. We always talk about being able to find great entrepreneurs before it’s obvious to the world, and help them on the path from obscurity to ubiquity. It’s never a straight line. We started with eBay, and I’m glad that over the years we’ve been able to have multiple successes.
And your biggest dud?
Eos, a transatlantic, premium-priced, business-class-only airline. It had an incredible and compelling customer experience. But it competed against hugely entrenched competitors and had really high costs to execute the service, with a lot of structural impediments. I remember one of the consulting firms gave us a grandiose study on why this was going to work — a brand-name consulting firm — and it was completely incorrect. We underestimated the loyalty that customers have to frequent-flier points and the ability of the incumbents to subsidize other parts of their route system.
If you can’t trust a brand-name consultant, where do you look for validation of your investment theses?
Some of the best ideas that we’ve invested in have made no sense to conventional sources. For instance, we’ve invested in a company called Trupanion. It’s pet health insurance. It’s astounding to me that Americans spend approximately $55 billion on their pets every year. But my partners reminded me that I didn’t know anything about insurance. So I spent a year working on it and getting to know the entrepreneur Darryl Rawlings.
Despite being an analytical banker by training, you seem to put a lot of emphasis on the top person at a startup.
We’ve created a checklist of 10 characteristics of an entrepreneur. You can have the best business in the most exciting industry, but if the torch holder — the value creator — isn’t there in our judgment, then we don’t make the investment.
Connected is an interview series with leaders of innovative organizations. Conversations are condensed and edited. For more Q&A and video, go to fortune.com/connected.
This story is from the February 24, 2014 issue of Fortune.