Warren Buffett is famous for saying, “It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” While we’re also value investors, at the earliest stage of venture capital what makes a bigger difference than price is backing a company with tremendous market or regulatory tailwinds, and an amazing founder at the helm. The Why Now and the Who. This isn’t to be conflated with Simon Sinek’s "Start With Why.” This isn’t about Purpose. This is about seeing where the world is already going, and capitalizing on those market tailwinds.
Venture capitalists fall into archetypes of decision making, namely those who:
Focus on the “What” (Product-Led VCs)
Focus on the “Who” (Founder-Led VCs)
Focus on the “Why Now” (Velocity-Led VCs)
The “Product VC” will go really deep on product and on technology. They’ll get in the weeds with you, do deep technical diligence, and make their decision on the basis of how good is the “What” that you as the founder are building. Series A, B, and growth stage investors tend to have to be excellent product VCs, because at that point there are many players, their investments are highly concentrated and large dollar amounts, and the depth of nuance in how the product or technology functions is really the delta between whose product wins, and who assumes the majority of the market.
The “Founder VC” will focus on you as the founder. Why are you the perfect person to be building this? Do you have the grit and perseverance to stick with it longer than anyone else, to not quit when the market gets bad, or competition attacks? Do you have a chip on your shoulder and a will to win more than others? Do you have the charisma to story-tell, and get others to follow you to the ends of the Earth, as you will need to to fundraise, hire, and sell the hell out of your product and idea? Many people wrongly think that VCs are looking for someone who went to Harvard or who worked at McKinsey. Quite the opposite. I tend to think of those as my initial yellow flags. Those are high-achievement, risk-averse logos that signal ego and inflexibility. What we are looking for in founders we back at Everywhere are three things:
High Communication (Open, and not conflict-avoidant)
High Coachability (Humble, able to integrate feedback)
High Cadence (High-energy, focused problem solvers)
These are what I call “The Three C’s.” Communication means that you’re transparent, you telegraph change, you get on the phone quickly to walk through scenarios that might not be easy to address, you can meet conflict head-on, with depth, reason, and calm. Coachable means that you’re humble in conflict, you can take feedback, you have a backbone but you also listen deeply, and think about how to integrate new ideas. Cadence refers to your pace of problem solving. It’s not running around chasing shiny objects, to reinvoke the metaphor of the “Rocking Horse” founder who is always in motion but never progressing. In contrast, high cadence refers to a founder who can prioritize rigorously, not waste effort or motion, and laser in on the most important pieces of the puzzle, knocking down outcomes quickly. When things don’t go as planned, they’re quick to reasses, cut losses, change direction decisively. A high cadence founder solves something in hours, not days, and not weeks. They need not always be right, but they’re directionally accurate, and iterating at a high pace.
The “Velocity VC” prioritizes the “Why Now” more than the “What” or the “Who.” Many people wrongly throw stones at Velocity VCs believing them to be FOMO-laden shiny object chasers. Some are, to be fair, this. But other Velocity VCs I’d argue have a strong opinion about the direction of the market, and they look to back companies already three sheets to the wind in a fast moving gale. They look to back companies who’ve already picked their spot in the wave. To consider the quote by Buffett, this is the argument for backing a fair company in a fast-moving market, rather than a wonderful company in a slow-moving market. In other words, I’d argue if your “What” and your “Who” are right in a fair market, you might do 11/10 things right and still lose. In contrast, if your “Why Now” is explosive, you can do 6/10 things right and still win. In other words you might be the wrong “Who” and not even the best “What,” and you’ll still end up succeeding because of the exogenous drivers of your business. (Of course, over time poor leadership and poor product will still destroy a good thing, but all things being equal these exogenous drivers of Why Now matter hugely).
Overall when I think through my own investing heuristics, “Why Now” is my most important initial lens. If I can’t understand why there isn’t an absolutely burning problem and a reason for this to happen this year, not next, not last, then it’s hard to get on board even if there’s an incredible “Who” or “What.” In pre-seed investing the second-most important criteria is certainly “Who.” You could argue that it’s all Who in the sense that a great founder will identify a big opportunity market and essential Why Now, but I still don’t think that’s always true. What’s clear though is the least important component of pre-seed investing is the “What.” Exactly what someone has built, or very early traction is to me a red herring, meaning it can be a distraction. If you’re getting early validation but in a market that truly has a small TAM, and does not have meaningful tailwinds for a red-hot, burning “Why Now,” I’d advise hitting pause and finding that gale force wind rather than chasing early traction. Many wrongly chase very small MRR in a small TAM-market thinking that investors want traction. This is the path to slogging into the slow-moving tides, where you have to do 11/10 things right to generate a mediocre outcome. In contrast, by thinking about the macro tailwinds, you might find a jet-stream elsewhere. Think about what investor archetype you’re pitching to, and stress-test their own advice. A Product VC will always push you for more traction, better metrics. A Velocity VC might ask you to take a week off and read the newspaper and think about where you think the world is truly going, and how can you capitalize on something no one else yet sees.
One of my favorite stories in my book is about Shoaib Makani and what was then called Keep Truckin’ now Motive. They saw coming regulatory change around electronic engine logging device (ELD) regulation for truck drivers, and built a company into this regulatory slipstream. Many companies in telemedicine, and other sectors that really identify core changes, can build into explosive markets. They need not have the perfect “What,” but merely pitch the potential of the “Why Now.”
In our portfolio we recently backed Operant AI. This was a prime example of backing first “Why Now,” then “Who,” then “What.” The Why Now was that every app is now built on and reliant upon dozens of infrastructure layer services and APIs, and this induces huge security risks. Operant was going to build a “Runtime Security” company focused on real-time cyber risk identification and mitigation. That was the Why Now. The Who was that the team came out of deep expertise at Apple, VMWare and Google. The What was conceptual, and unbuilt. Some investors would have waited, but to us, Felicis Ventures, and others, the Why Now was red-hot. As long as we knew the team would be highly iterative, and directionally correct, and that their product would be tech-enabled, high-margin, and have some returns to scale, we didn’t really need to know the exact What, and we didn’t need any early traction.
This is perhaps a controversial opinion, but start with “Why Now.” Ask yourself where you can most authentically attack an explosive market with high communication, coachability, and cadence. What’s more important than even size of market is the rate of change in that market. Then once you’ve identified these table stakes, then begin thinking about the “What.” What you build certainly becomes hugely important, but don’t get stonewalled by early Product VCs that over analyze what you’re building. Focus on People and Velocity VCs who recognize your talents, and help you find those markets with explosive rates of change, where you need not be excellent to win.
For more thoughts on this, read my piece on pitching Vision vs Traction.
Great piece Scott, Thanks