True statement: Some investors often prefer to back crazy concepts over more realistic, grounded solutions.
I've spoken with many folks who seemingly have a hard time grasping why some startups successfully raise funding when others don't – even when the one who can't has a working product, maybe some traction, and is undoubtedly a solution to a problem. It frustrates many. Some even see it as 'lighting millions of dollars on fire." As a former product manager, I periodically find myself feeling conflicted in these scenarios as well. Hence, a blog post on the topic as a reminder to my future self.
The Lure of Big, Weird, and Crazy
Investing in unconventional ideas might seem counterintuitive, but there's a method to the madness. Venture capital is about delivering outsized returns. To make fund returning investments, you often need to have solid ownership in a "home run." That often means opting to invest in ambitious, high-risk ventures over safer, lower-risk alternatives.
Take Uber and Square, for example. Many reading this may not even know what it was like to have to call a taxi, guess when it would arrive, negotiate the price, pay cash, hope you're not sitting on something gross, etc. When they first emerged, both companies seemed like long shots. They faced a myriad of challenges, from high barriers to entry and regulatory hurdles to complex ecosystems.
Thanks to hindsight, we know some of the core ingredients to home runs like Uber and Square:
- Relentless, tenacious founders. Investors are drawn to founders who demonstrate unyielding dedication to their vision and a willingness to persevere through challenges.
- A vision of a future that seems ideal and inevitable in some lifetime, but near impossible to attain. You couldn't deny that a world with Uber and Square was one you'd want to live in, 10x better than the past. You also couldn't deny that it seemed near impossible to execute successfuly.
- BHAGs – Big, Hairy, Audacious Goals.
- A network effect. The phenomenon where the value of your product or service increases as more people use it, creating a self-perpetuating cycle of growth. Hard to get started, but also hard to slow down.
- High barriers to entry.
- An underlying platform shift. In hindsight, we know many startups are often born on the eve of emerging trends or technologies, such as mobile and cloud. Recent AI advancements makes this upcoming vintage all the more exciting.
There isn't one way to do VC or way to build a monstrous business. But if you need some inspiration or aren't having much luck with your current idea, consider swinging for the fences and incorporating these ingredients. They're not a recipe for guaranteed success, but I guarantee they'll at least pique many investors initial interest if incorporated. Embrace the big, weird, and crazy.
On the other hand, life's never that simple. Reality is a bit more confusing... Uber just started narrowly as a black car service, in a single location. Shopify just started out by selling snowboards online. The game ain't simple. It's more art than science. Tenacious founders find a way to get shit done.