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Ask 7 Venture Capitalists: Why’d You Invest?

Key Speakers At The 2014 Milken ConferenceKey Speakers At The 2014 Milken Conference

This piece originally appeared on The Hustle.

The other day my bud told me about a conversation he had with one of Snapchat’s first investors. My bud asked the investor why he invested in Snapchat. The investor’s response intrigued me:

“Evan was so insistent that what made Snapchat special was that when the app opened it automatically showed the camera. I didn’t understand why that was important, so I pushed back. When I did, Evan looked at me like an idiot.

‘No, no, no – it has to open up right away. You have to click to get to the camera on Instagram. That’s stupid. Two too many clicks.’

I didn’t think it was a big deal to have that many clicks, but I was impressed that a 22-year-old would be that headstrong about something so small that I figured he would make it. So I wrote him a check.”

Far too often we forget that the companies we consider to be great were once a couple of folks tinkering in a garage. What they were working on seemed crazy, impossible, or stupid. However, what makes a great company a great is that at least one person early on trusted the business enough to give it a shot.

Whether they were the first customer, employee, or investor, someone gave them a chance.

And so, inspired by this conversation, I decided to find out what inspired investors to commit to some of my favorite companies.

Peter Nieh, Partner at Lightspeed Ventures

Invested in Tony Fadell, CEO of Nest (sold for $3.2 billion in 2015)

“We would have invested had they been looking to start a food truck,” Peter Nieh wrote about his investment in Tony Fadell, CEO of Nest. Peter met Tony in 1991 during a summer internship at a startup called General Magic. He said Tony was “a standout” employee from the very beginning. This was because Tony was fast, meticulous, and “wouldn’t shut up about the company direction and strategy.” This left a long-lasting, positive impression on Nieh.

Years later when Tony came to him for investment, Peter said: “There was no hesitation from my partnership.” He “had a deep belief that Tony and Matt [his partner] would make something BIG happen no matter what — it would have been a game-changing food truck no doubt!”

Yishan Wong, former Reddit CEO

Invested in Matin Tamizi, CEO of Balanced, a payment startup that raised $3.55 million

Startup Balanced closed shop in July 2015 after failing to make their payments business work. They transferred their customers to Stripe, and sat back to figure out their next steps.

But in the few years they were running, Balanced raised million of dollars. How did they convince people to invest?

Yishan Wong explained on Quora why he invested in CEO Matin Tamizi.

“Matin is an unusually resourceful and relentless guy. After being in startups (working for them, helping them out), you start to see a difference between people who keep on going and get things done, and regular people. What impressed us was how strong his work ethic was and how he would constantly work from a variety of angles to overcome problems. This stuff all sounds obvious, but not everyone actually does it.

So that is one key prerequisite to a good startup (so far as I can tell) – the founder(s) have to exhibit this trait, because it extends into the rest of the team. If you don’t have the will to keep going, keep trying, and generally be pretty stubborn about pushing ahead always, you’re not going to get anywhere.”

Wong’s final reason was that “the product is pretty good, and as far as I can tell, it’s the only one in its space.” Note that the actual product took a backseat to the tenacity and work ethic of the CEO.

Steve Case, co-founder and former CEO of AOL

Invested in LivingSocial (raised $934.73 million)

Steve funded LivingSocial because he had a relationship with the four founders, who’d worked for him before. He said they were “great guys” and invested some money in their first business, a Facebook apps company. Steve observed how quickly they gathered users – around 80 million in a short time period – but noted how they struggled to monetize them.

When the team came up with a social commerce plan, Steve said: “It was clear they were on to something and it was time to slam down the accelerator and invest heavily.”

Jason Calacanis

Invested in Thumbtack and Uber (now valued at $1.3 billion and $68 billion, respectively)

“I invested in Thumbtack and Uber. When Travis and Marco came along with their ideas, I didn’t even try to judge if “on-demand drivers” and “a better craigslist” were winners, because I knew the individuals were winners. That’s enough information to make a bet.

Which leads me to “Jason’s Law of Angel Investing,” which states:

You don’t need to know if the idea will succeed – just the person.

After five years of this, I’m always looking for signals that the person is a winner – even in failure. Two of my favorite founders have had their asses handed to them, and I’m chomping at the bit to see what they will do next, because I know they’re winners who do great work, so eventually they will hit it… just like Elon hit SpaceX on his third swing at bat and Tesla on his fourth, and Travis hit Uber after Scour and Red Swoosh, his first two startups.

Great founders grind it out and figure it out, so as angels you really don’t need to overthink if electric cars will work, whether on-demand transportation will scale, or if is a platform or a publication (hotly debated) – you just need to know if someone is a winner.”

Jon Medved, CEO of Our Crowd and Venture Capitalist

Invested in ReWalk, a robotics company that helps paraplegics ($21 million estimated 2017 revenue)

“We co-invested alongside the robotics Yasakawa Company, which invested $10 million with us. What led us to go into that company was the fact that the entrepreneur was truly passionate, someone who had a track record that had already built a successful company and he understood this problem very well and came up with a great solution.

The company was addressing a huge and growing market, which is inclusion, the idea that people today who are paralyzed are still sitting in wheelchairs that really haven’t changed much in 100 years.”

Jerry Neumann, Venture Capitalist at Neu Venture Capital

Invested $7 million in Flurry, a mobile analytics service (sold to Yahoo! for $240million in 2014)

“I was one of the first investors in the company that became Flurry. I knew the founder. I had worked with him previously, so I knew him very well,” Neumann toldFull Ratchet. He had decided to build analytics into the first generation of iPhone apps. So he called me that day the iPhone app STK was released and said, “I’ve built this analytics solution.” And I think I said, “That’s great, you should build that.” He said, “No, I’ve already built it.” I said, “That’s not possible, they just released it.” He said, “Well, it’s our beta version, but it’s — I’ve got it.” And then I invested.

I think the two things were really knowing the founder and I also knew their technical person. So the two people who started the company, I knew them really well. I knew they were a good team because they worked together in the past. And I felt like there was this new technology that they could take advantage of and be first to market in something that I thought was gonna be a really big market, this iPhone app market.”

Eric Gasser, VP at Hi-Tech Screening and Board Member at Tech Coast Angels San Diego

Invested in Portfolium (raised $900,000)

“One of the great companies that I thought was solving a problem is called Portfolium,” Gasser told Full Ratchet. “Their CEO was a young kid when I first met him, and he has an amazing backstory where an angel gave him some capital and said ‘Look, I believe in what you’re doing. I’m just gonna give you a check and just go.’ So he gave him a check, he went to build out this platform to allow — basically think of it as the LinkedIn for college students, right. It’s been done a hundred times, and I get it, but this guy had a unique spin on it. He built something similar to solve a really hard problem for himself when he graduated from school to get himself a job.

He realized that, for him to be successful, he needed to go back to school and learn how to code so he can build this thing. Because he knew the seed money he’d gotten — he wasn’t gonna be able to pay someone to do it, it just wasn’t enough. So instead of beg, borrow, and steal, and all the other friends and fools and all that con stuff, he went back to school, spent some time, I think, while he was in school, wrote — built out an MVP, and then he came to Tech Coast Angels.

And he said ‘Look, I’ve had one of the largest employers for college kids in the country. I’ve got great connections with the school system here in San Diego, in California. We really think there’s something here.’ It was one of those things where I could see what he was building, I could see what he was doing, and it was kind of a no-brainer for me. It was kind of like he’s solving a problem that needs to be solved, and he’s doing it really, really intelligently. And he was thinking about revenues, but they weren’t actually driving his decision making. The customer was driving the decision making.

And that meant a ton to me, because typically what happens is, the founders, once they see cash, they gravitate towards the cash and lose focus on the customer. Especially this early stage. And so during the due diligence meeting, we were done, he was going through a local incubator at the time, and I grabbed him. The advisor, I pulled him aside and said ‘Look, how much do you need to stay alive for the next three months so that we can go through due diligence, we can syndicate this deal, everything we need to keep it going?’ and I was willing to write a check right then solely based on the fact that someone else believed in him — which could mean I’m crazy, but when someone writes a check and says ‘Go away and build it,’ that means something. The next element was that he really believed in his customer and didn’t want to pivot or shift his model to follow the cash. I believed in that model.”

The takeaway

Every investor looks for different things in their entrepreneurs, but passion, understanding, and smarts are key to getting those checks. Do your market research, provide a real value to people, and never forget the focus on the customers. You’ll get a better response if you reach out once you’ve proved yourself – and this can be shown through dedication and user-base, not necessarily a revenue stream.

You’ll have a way easier time if you check all these boxes. Good luck!