VCs are always on the hunt for the next 10x company, but what draws them in can be anything from a great founder team to product-market fit to a game-changing user interface. Below we highlight quotes from funding announcements, interviews, and VCs’ own blogs where they share what aspect of an up-and-coming startup made them want to invest.
Steve Anderson, Baseline Ventures
Instagram, 2010
“[Kevin Systrom, founder of Instagram] had his iPhone and bunch of HTML code he’d hacked together called Burbn. It was a bunch of hypotheses and no real clear answer [as to] what to do—photos, check-in, comments, gamification. Instagram emerged out of that, a paring down of features that were really working … to a product that has a great product market fit. Generally speaking, most of my investments are pre product launch, they’re just an idea. So getting product market fit is the most important goal of the round. My goal as an investor is to make sure there’s enough financing to give companies time to do that, a year to 18 months.”
Alfred Lin, Sequoia
Airbnb, 2009
“The Airbnb guys are scrappy and creative. They told this story about how hard it was to get the company going. It was 2008 and they had run out of money. Their last chance was to go to the Democratic National Convention in Denver and try getting folks to rent out their apartments to delegates. They came up with a promotional idea of designing a cereal box called Obama-O’s figuring ‘even if we can’t rent any rooms, we could probably get $5 a box.’ CNN and other news stations found out and gave them fabulous coverage. Needless to say, they did just fine renting out rooms — and we were genuinely impressed. People all too often miss creativity as a key indicator for whether or not a team is special.”
Jeremy Liew, Lightspeed Venture Partners
Snapchat, 2012
“I downloaded the app, and I really didn’t understand what the big deal was [but figured if a] subset of people are using something intensively, it’s worth understanding why.”
and:
“People were using [Snapchat] like crazy and staying for a really long time … When everyone is saying, ‘We don’t invest in this,’ that’s sometimes a good time to invest. You have to find a reason the conventional wisdom no longer applies.”
Jeremy Levine, Bessemer Venture Partners
Pinterest, 2010
“In the pre-TechCrunch era when most venture capitalists on Sand Hill Road and in Silicon Valley wouldn’t touch a consumer company with a 10-foot pole (“consumer” was almost a dirty word), we at Bessemer got pretty excited about one idea: that you could build a really valuable media company based entirely on user-generated content. We made four or five investments in 2005-6, and every single one of them turned out to do pretty well: Yelp, LinkedIn, Wikia, and OLX (a global online classifieds and auction service) … But there was one particular kind of company that we were scouting for constantly—a user-generated content media property around products, because products are so wildly monetizable. So at the beginning of 2011, when I first learned about Pinterest, it struck a nerve immediately. I said: This is essentially the company I was looking for six years ago. That’s why we jumped on it at a time. It was probably not quite as intuitive or obvious as it is today.”
Bing Gordon, Kleiner Perkins Caufield Byers
Magic Leap, 2014
“The product is amazing, even at this stage. I’ve been around technology for decades, and this makes my head spin—in a good way. My eyes tell me that this world is real, not just painted with perspective. I feel motion without my inner ears rebelling. Over the years, I have played a part in creating many magic tricks, from one platform to the next. But this is different … Beyond delivering a new experience to gamers, this incredible team at Magic Leap is bringing the future of computing to life, creating the platform that will shape how we interact with technology and with one another.”
Ethan Kurzweil, Bessemer Venture Partners
Twitch, 2011
“We liked the team. They were passionate about the business, solid on execution and knew where to focus to build the organization … they were off the charts on a number of ‘hard to hire’ attributes: passion, product vision, and empathy for their users … Twitch targeted a very specific audience … In drawing parallels between Twitch and the viral growth of online poker and e-sports in Asia, we convinced ourselves video games could not only become a spectator sport, but that the market size was large enough for Twitch to become a massive site, which is necessary to have any sort of effective advertising business.”
Jim Goetz, Sequoia
WhatsApp, 2010
“I recognized that a new business model was under way … WhatsApp only wanted to focus on how current users were engaging with the product … I think [that] came because they were designing something for themselves first … That [outlook] came, I think, from their lives and frustrations from working at Yahoo (both Koum and Acton worked there) and seeing what happened when the company shifted its focus to advertising and away from the user. Meanwhile, they were watching Google run away with the business by doing the opposite — a simple approach that started with consumers. They defined WhatsApp by simplicity and that’s spectacular. They were passionate about connecting people.”
Fred Wilson, Union Square Ventures
Twilio, 2008
“Jeff came into the conference room, sat down, and said ‘we have taken the entire messy and complex world of telephony and reduced it to five API calls.’ I said ‘get out of here, that’s impossible.’ Jeff proceeded to reel them off and I said ‘wow.’ He then pulled out his laptop, fired up an editor, and started live coding an app. He asked me for my cell phone number and within 30 seconds my phone was ringing. I said ‘you can stop there. That’s amazing.’”
Fred Wilson, Union Square Ventures
Twitter, 2007
“When we invested in Twitter, we had to imagine that hundreds of millions of people around the globe would use Twitter to find out what was going on, and that Twitter would be able to build an advertising business around that behavior that would result [in] billions of dollars of annual revenue, and that Twitter would be able to generate positive cash flow on that revenue, and that the public markets would welcome Twitter and value it as a multiple of those revenues and that operating cash flow.”
Roelof Botha, Sequoia
YouTube, 2005
“They have built a very easy-to-use, fast-growing service that taps several strong veins: user-generated content, online advertising, wide proliferation of inexpensive digital video capture devices, and continued broadband adoption. The company has also developed code snippets that allow users to embed YouTube videos directly into other sites. In this way, the company is building a wide content distribution network, in addition to its direct-to-site traffic.”
David Sze, Greylock Partners
LinkedIn, 2004
“I am very enthusiastic about this opportunity. I think they are well on the way to being impossible to catch [on] in their space from network development, and they have the potential to build a much more addictive experience on top of that user base, and to monetize it in ways that are relatively non-jarring to their users, and with large revenues and margin potential. I also think Reid is world-class in this type of business and am excited to work with him.’
And:
“Re-reading our memo, I noticed that I didn’t even use the words ‘social network.’ This was still a relatively new concept overall, and certainly not one yet applied to business networks. With 900,000 users, I was bold enough (crazy enough?) to assume that the hard work of getting to scale may have been behind them. Clearly the ensuing nine years showed that they had plenty of hard work left to build a dominant platform for business users.”
Greg Bettinelli, Upfront Ventures
Loot Crate, 2016
“In a world of high-burn, crazy marketing spending, and upside-down unit economics, I have tremendous respect for the discipline and efficiency required for Loot Crate to thread such a needle … The Loot Crate experience even allows category and genre enthusiasts first looks at new franchises and new content … It’s a virtuous circle of content, commerce, and experience with incredible potential for fans and creators alike.”
Bryan Stolle, Wildcat Venture Partners
Earnest, 2015
“Earnest’s core business of alternative lending and their vision to build the bank of the future fit squarely with our fintech focus and has a large addressable market [and] … Louis [Beryl], Ben [Hutchinson], and the rest of the team are impressive entrepreneurs with firm, experience-based views on their market and how to build a business.”
Fred Destin, Accel Partners
Pillpack, 2014
“30 million people in the US … take more than five medications every day. That’s a big group of people who have to deal with packing their pills into little boxes and standing in line at a counter to get their refills … [Pillpack aims] to do only one thing and do it really well: deliver all prescriptions, over-the-counter medications and vitamins in a two-week roll of individual packs organized … to give people back their lives.”
Tony Conrad, True Ventures
Blue Bottle Coffee, 2014
“When I closed my eyes and thought about the things that were important to James [Freeman, founder of Blue Bottle], they were not dissimilar to what I’ve learned to recognize in what I’ll call ‘founders of movements’ … James had a vision every bit in the same way that [WordPress co-founder] Matt Mullenweg had a vision for democratizing people’s voice. Caterina Fake at Flickr, Kevin Systrom at Instagram—they’re rare, but when you run into them, you know it.”
Bill Gurley, Benchmark Capital
Dropbox, 2012
“Many people asked us why [Dropbox] was a special company that would cause us to break our standard investment paradigm. They didn’t quite understand why this was a company that deserved once-in-a-generation special attention. The first answer to this question is rather straightforward, but not earth shattering. Drew Houston and his team had taken a hard problem—file synchronization—and made it brain dead simple … Dropbox commoditizes your devices and their OS, by being your ‘state’ system in the sky. Storing credentials and configurations of devices, and even applications are natural next steps for this company … That is a major, major deal.”
David Pakman, Venrock
Dollar Shave Club, 2012
“What Michael was creating fit a number of my investment theses. I believed (still do!), in the age of social media, brands must become direct-to-consumer in order to know their own customers. Having run eMusic and a few other subscription businesses, I knew that subscription is a business model that only actually works for a select few product categories, and that churn rates must be very low (well under 5% monthly) in order for subscription businesses to succeed at scale. I believed it was possible to use asymmetric marketing to injure existing incumbents who overly depend on broadcast advertising and distribute only through retailers. When I saw DSC’s early numbers, I immediately knew they were on to something big.”
Jeff Jordan, Andreessen Horowitz
Zulily, 2012
“Zulily is one of the fastest-growing businesses we have ever encountered … The company spent minimal capital to achieve this result. Zulily participates in enormous markets. They started out offering kid’s apparel that moms bought … We are also impressed with Zulily’s execution. They are as data-driven as any company we’ve encountered, and use it to great advantage in both marketing and merchandising. They leverage technology adroitly to optimize the business. And they’ve rapidly developed operational capabilities that have enabled their hyper-growth.”
Reid Hoffman and James Slavet, Greylock Partners
Groupon, 2011
“We went in positively inclined towards the Groupon management team … Groupon is targeting a market that is huge and broken. Local advertising is a $100B annual business in the US and consumers spend something like 80% of their disposable income within a couple miles of their homes … We were interested in the team and the market and we’d also read the publicly available estimates about Groupon’s almost inconceivable growth in new markets, subscribers, business customers, and revenue … We started really leaning forward in our chairs when the discussion turned to strategy, including the ways to use data to power Groupon’s future consumer- and merchant-facing products. Groupon is the clear market leader in the local deals market. Their scale advantage on both the consumer and merchant side enables them to offer the greatest number of high-quality deals.”
Brad Feld, Foundry Group
MakerBot, 2011
“Over the past decade, the DIY phenomenon has resulted in an increasing number of people using 3D printing technology … three hackers—Bre Pettis, Adam Mayer, and Zach Smith—teamed up and created the first open source 3D printer, known as the MakerBot Cupcake … The Cupcake generated a wave of excitement among DIY hackers and the analogy was made between early personal computers such as the MITS Altair 8800 or the Healthkit H8 and the Apple II – Last year, MakerBot came out with their second generation product, the Thing-O-Matic. At the same time, they’ve created an incredible community of 3D designs called Thingiverse. And they are hard at work on their third generation printer. We believe MakerBot has the potential to be the Apple or HP of the 3D printing market.”
Mark Suster, Upfront Ventures
Maker Studios, 2011
“What excited me was that they had an immensely talented team that understood how to produce [and] distribute low-cost videos, initially via YouTube. It was founded by Danny Zappin, Lisa Donovan [and] Ben Donovan (along with several creative talent like Shaycarl, KassemG and others). They know this model of YouTube production [and] distribution better than anybody else that I’ve met in my 5 years in Los Angeles … This kind of business will not easily be replicated in Silicon Valley precisely because the skills are different.”
“YouTube is the new Comcast. It is the new distributor of video. Yes, it’s lower quality than network, prime time television. But many network shows cost up to $100,000 PER MINUTE to produce. Maker Studios costs about $500 per minute. Guess who has a huge advantage in the future of the medium.”
Abhas Gupta, Wildcat Ventures
Clover Health, 2016
“A critical feature of Clover’s model, and what differentiates it from other health insurance startups, is that it is not beholden to provider contracting leverage — the root, economies-of-scale competitive advantage of today’s large payers. In our view, this is a necessary prerequisite of nascent insurance startups who are competing against large, established players.”
and
Abhishek Sharma, Nexus Venture Partners
Clover Health, 2016
“At Nexus, we believe that technology has the potential to transform the global healthcare system … [Clover’s] approach leads to better clinical outcomes … reduces effective cost of care, and eventually passes the benefit to patients in the form of lower out-of-pocket costs and premiums.”
Andrew Parker, Spark Capital
Kik Messenger, 2011
“Kik focuses on a new graph unlike any prior investment we have made in the social networking space: a graph of strong social ties. When all communication in a network is private, the connections that form between users are mutual and very deliberate … by being a mobile-only social network, Kik has a distinct advantage over existing messaging networks: your phone is always on you … you can message anyone in your graph at any time, and you know that message will hit their phone. This immediacy is powerful, and can be interruptive, which further emphasizes why Kik is focused only on strong ties.”
Josh Breinlinger, Jackson Square Ventures
OfferUp, 2013
“The OfferUp team are relentless—they will achieve their vision or die trying. There is a complete faith that they are making the world of P2P commerce much better, simpler, and safer … They are understated—no flashiness or hype on the team. They are always very honest about the challenges of the business and the current state of affairs. They under-promise and over-deliver, with a happy tendency to exceed forecast … That is intentional—the company is always laser-focused on the customer. And just as importantly, they have fun.”
Mark Suster, Upfront Ventures
MakeSpace, 2013
“When Sam Rosen brought me the idea of MakeSpace 3 years ago we both marveled at some obvious facts. The public storage market was $24 billion … in the US alone (> $50 billion worldwide) and the largest player in the space—Public Storage— had less than 10% market share. Fragmented markets can be a great target for disruption … where [incumbents saw] stability we saw a sitting duck. They are the classic case of the Innovator’s Dilemma because they fundamentally can’t innovate on their product and can’t lower costs or their business craters. They have high-priced property and zero innovation. And it’s easy to run circles around them.”
Sameer Ghandi, Accel
Flipkart, 2013
“Flipkart has a very strong consumer value proposition and e-commerce is very competitive as a category, regardless of geography. While it’s a merchant business, they (Flipkart) have really architected it to be a service business, whether that is having great price and selection on the website, a super shopping experience whether you’re coming from the web or mobile, enabling payments, very consistent high-quality delivery, great customer support.”
Josh Kopelman, First Round Ventures
Upstart, 2012
“Upstart, is looking to tackle [the problem of high student loan debts] with an innovative new approach … students finally have the freedom to make the best choices for them, regardless of short-term income flow. The Upstart team is comprised of a number of ex-Googlers and is being lead by Dave Girouard, who formerly lead all of Google Apps.”
Andrew Parker, Spark Capital
Panorama Education, 2015
“Panorama has collaborated with Harvard University’s Graduate School of Education to build a best-of-breed survey design optimized to capture the best possible data across a wide variety of themes and then open sourced the design … The Panorama founders … and the team they’ve built are a very impressive group with a mission-driven obsession to build the best possible platform for schools to measure and improve their education.”
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