You’re Asking the Wrong Question

When I published, “Startup Ideas We’d Like to Fund” in December, it was an open response to a question I get a lot. Which is, “what areas do you invest in?”

However, the truth is that I am not a fan of this question at all, and always feel conflicted when asked to answer it. The question draws lines in the sand, clearly putting companies into “will invest” or “will not invest” boxes. The problem with this, however, is that disqualifying companies without hearing the idea first and getting to know the founders is a recipe for lost opportunity.

While it is fashionable for venture capitalists to pontificate about the next big thing, we are all just talking heads. Our fortune telling antics are nothing more than a guise in the form of herd mentality scripts or “contrarian” sound bites from Peter Thiel. The truth is none of us have any idea what we’re talking about, and we need entrepreneurs to figure everything out.

Fortunately, entrepreneurs often have a much better intuition for what will be valuable. They are the ones thinking about the idea day in and day out, often risking their lifesavings, career, and reputation despite the very real possibility of oblivion. The startup world tends to romanticize failure, but failure is not fun. Most failure stories you hear about are the ones that later end in success. Survival bias blindsides us to the pain that entrepreneurs really go through when things don’t work out. So when an entrepreneur risks everything, it means something. It shows conviction. And no matter how much a venture capitalist thinks about a space, putting something in your portfolio and putting your life on the line are two completely different frames of mind.

Ideas also evolve. A company could go through several business models before ever finding the one that really takes off. DeNA, for example, started with an auction site similar to eBay, then went on to online shopping, then to mobile auctions, then to mobile advertising, then to mobile social networking, and then finally to social gaming. Throughout all those iterations, the ideas were not what ultimately made the company successful. It was the strength of the people working on those ideas.

That is why I’d much rather stay openminded. The founders tend to be much more important than the ideas themselves. And when it comes to ideas, the best ones tend to be ones that surprise us, not ones that we’re waiting for. Sure, we might have our own theses on where certain markets are going, or have areas that we’re particularly excited about. But a list of startup ideas we’d like to fund is simply a guideline and not a manifesto. So instead, a better question might be “what areas are you excited about?”

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