Early Signs Of A Billion Dollar Company (Key Points) - Elad Gil
"Given a 10% chance of a 100 times payoff, you should take that bet every time."
— Jeff Bezos
Today’s Thought: Unicorn Traits
What got me thinking:
Recently, I’ve written my first angel investments into early-stage companies (with a few more in the process). But, I also say “no” regularly, even though most ideas are great. With such risky investments, the question is, what makes a good investor?
Elad Gil is a renown angel investor. His portfolio includes Airbnb, Airtable, Anduril, Brex, Checkr, Coinbase, Flexport, Gitlab, Gusto, Instacart, Opendoor, PagerDuty, Pinterest, Samsara, Square, Stripe, and Wish. He recently sat down on NFX to discuss how he spots companies before they’re worth billions. Here are four key takeaways:
1. A colossal market is more important than you think. Teams matter a lot, but that’s probably the wrong emphasis. Even the best founders will fail without sufficient demand. Conversely, mediocre founders can exceed expectations in large markets.
2. Companies that innovate early and get to a second product line tend to innovate frequently. Like most things, innovation takes practice. It’s a muscle that necessitates working out. If you innovate early, when operations are small, you’ll likely do it again. If you leave it late, you’ll struggle to do it repeatedly as operations scale.
3. Every startup needs a single miracle. Any less would result in an overcrowded market because entering would be too easy. Any more would require “cascading miracles” (ref. John Malone) to succeed. The compounded difficulty, reduces the slim chance of success from low to virtually zero.
4. Balance a fair valuation and expert board members. Early board seats within companies are as significant as early hires. Board members can even vote to remove the founders. So make sure you bring people on board who you’re comfortable working with for at least a decade. Also, make sure one or two of them has growth stage expertise. The skills needed initially differ to those required when scaling, acquiring companies and expanding geographically.
Investing is an area full of tried and tested principles. I’ve spoken to veterans who’ve wasted money trying to rewrite these principles only to lose money. This list is not exhaustive, and there’s some room for a bespoke thesis. However, study these principles and others, that will allow you to spot outliers.
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