20 VC 031 Investing in Gaming, Luxury Goods and Disruption with Maha Ibrahim, General Partner @ Canaan Partners

In episode 31 of the "20 minutes VC," host welcomes Maha Ibrahim from Canaan Partners, who shares her journey from academia to venture capital, highlighting her early recognition of social gaming's potential with investments in Pixpal and Kabam. Maha discusses the importance of market timing, product-market fit, and the delicate balance between growth and profitability. She also touches on the challenges of investing in the fickle gaming industry and the success of The RealReal in luxury consignment. Maha emphasizes the need for VCs to specialize and become subject matter experts to differentiate in the competitive VC landscape. She values referrals through her network for new investments and seeks disruptive opportunities, like her recent investment in Cluster HQ, which aligns with her focus on data center infrastructure software.

• Maha Ibrahim is a general partner at Canaan Partners, a venture capital firm.
• She is recognized for her early investments in social gaming, including Pixlab and Kabam.
• Maha was included in the Silicon Valley 40 under 40 list and is a regular on Bloomberg TV.

"Now on today's show, I am thrilled to welcome Maha Ibrahim, general partner at Canaan Partners."

"As a result of Maha's incredible success, she was included in the Silicon Valley 40 under 40 list and is a regular on Bloomberg TV."

The quote introduces Maha Ibrahim as a successful venture capitalist known for her early investments in the social gaming industry and her recognition in the Silicon Valley 40 under 40 list, as well as her appearances on Bloomberg TV.

• Maha intended to pursue academics with a Ph.D. in economics from MIT.
• She decided against academia due to its solitary nature.
• Worked at BCG in San Francisco for eight months but was drawn to the tech innovation she observed.
• Joined Quest Communications as VP of Business Development, interfacing with venture-backed startups.
• Transitioned into venture capital seamlessly after the dot-com bubble burst.

"I joined venture 15 years ago during the first bubble, and about a year later it subsequently popped."

"I went to BCG in San Francisco for eight months and looked outside my window and said, there's all this technology innovation happening."

"Then I joined Quest Communications, where I became vice president of business development... And those largely were venture backed startups. So that allowed me to interface with a lot of VCs that were backing these companies. And then the transition to venture was seamless thereafter."

These quotes detail Maha's journey from academia to consulting, her move to the tech industry due to the surrounding innovation, and her eventual seamless transition into venture capital, influenced by her role at Quest Communications and interactions with VCs.

• Maha persisted in venture capital despite the challenges following the dot-com bubble burst.
• She values the lessons learned during the slow recovery period, including company downsizing and expense management.

"I definitely persisted and carried on... It was a tough five years... But on the other hand, I got to see what it meant to have companies close down and companies really have to concern themselves with expenses and burn rates and all of that yummy stuff."

The quote emphasizes Maha's perseverance in the venture capital industry despite the tough economic climate following the dot-com bubble and how it provided her with insights into the importance of financial prudence in startups.

• Maha believes in startups achieving profitability and having a business plan that leads to it.
• She acknowledges the benefits of high burn rates if there is a clear product-market fit and customer adoption.
• Maha advises a balance between aggressive growth in massive markets and caution for early-stage companies still finding their product-market fit.

"It might be that I'm pretty old school, but I believe in getting to profitability and having a business plan that gets you to profitability."

"If there is a product market fit that you feel is dead on and you're seeing customers adopt and adopt and adopt, there is a huge virtue and a huge benefit to being a first mover and the biggest mover in a huge category, and that's where you really want to step on the gas."

The quotes reflect Maha's investment philosophy that combines traditional business fundamentals with strategic growth spending, emphasizing profitability, product-market fit, and the advantages of being a first and significant mover in the market.

• Maha was an early investor in social gaming, recognizing its potential before many others.
• She led Canaan Partners' investment in Pixlab and was a seed investor in Kabam.
• Maha's foresight in the potential of social gaming contributed to her reputation in the venture capital industry.

"Maha is renowned in the venture industry for her ability to spot technology trends early proven through Maha being one of the first investors to recognize the huge potential of social gaming."

"You were really one of the first people to recognize the potential for social gaming, leading me to ask, what did you see?"

These quotes highlight Maha's talent for identifying emerging technology trends, specifically her early recognition of the potential within the social gaming sector, which led to successful investments in companies like Pixlab and Kabam.

• Maha Ibrahim discusses her early investment in Pixpal, a company that was part of a shift from traditional fantasy sports to frequent contest platforms.
• Pixpal did not fully capitalize on mobile technology, which was a limitation at the time.
• Despite being early to the market, Pixpal was a successful investment, eventually being sold to Liberty Media.
• Maha Ibrahim's investment in Pixpal was driven by the trend of gaming and gambling moving towards fantasy sports on the web.

"But Pixpal was my first investment, was my first consumer investment generally. And it was pretty clear that there was a movement from traditional fantasy sports to something that was more of a frequent contest, like you see now with companies like Fanduel and Draftkings." "The company was sold to Liberty Media and I think lives on to this day."

The quotes explain the rationale behind Ibrahim's investment in Pixpal and its eventual success, despite being early to the market and not fully utilizing mobile technology.

• Kabam started as a Facebook community fan-based company and pivoted to become a mobile gaming company.
• The success of Kabam taught Maha Ibrahim about the vast potential of the mobile gaming market.

"And then kabam, obviously, we invested in for a variety of reasons. It turned into a mobile gaming company after first being a Facebook community fan based community company."

This quote highlights the evolution of Kabam and its transition into the mobile gaming space, which provided Ibrahim with insights into the industry's growth potential.

• Canaan, the firm where Maha Ibrahim works, traditionally invests in Series A funding rounds.
• The firm focuses on early-stage companies where product-market fit, market timing, and market size are still uncertain.

"We like to invest at the series a. Okay, so we have traditionally, Canaan has traditionally been a series a player for over ten years now."

The quote outlines the investment strategy of Canaan, emphasizing their preference for early-stage investments where they take calculated risks.

• Maha Ibrahim acknowledges the challenges of investing in the mobile gaming industry due to its consolidated nature.
• The difficulty lies in the "winners take all" market, where a few large players dominate.
• New entrants face challenges in maintaining audience engagement and require sophisticated teams for customer acquisition and retention.

"If I were to do it today, it would be very hard for me to make an investment in the mobile gaming space for a variety of reasons. The biggest reason is that it is a winners take all market."

This quote conveys the competitive and consolidated nature of the mobile gaming market, which poses challenges for new and independent developers.

• Maha Ibrahim is proud of the investment in The RealReal, a luxury consignment leader that has shown consistent growth.
• The company's original investment thesis has remained valid over the years.
• The RealReal offers authenticated, high-quality luxury merchandise at lower price points.

"Yeah, this is one of the companies that I'm really proud of because the original thesis of the company has held true. Three years later and the company has just grown successively ever since we invested in it, almost without a hiccup." "So they are the leader in luxury consignment."

The first quote reflects Ibrahim's satisfaction with the investment in The RealReal and its sustained growth trajectory. The second quote defines The RealReal's market position and business model, emphasizing its leadership in luxury consignment.

• The company discussed has shown significant sales growth year over year.
• They have expanded from $10 million in sales to $105 million.
• There is an expectation to double sales in the current year, supported by the quality of their merchandise.

"They've grown from the first year, 10 million in sales to 50 million in sales, to last year, about 105,000,000 in sales. And they're looking to double this year, which there's no reason they can't given the quality of merchandise on the site."

This quote outlines the company's rapid sales growth, highlighting its success and potential for continued expansion based on the quality of their products.

• The company started shipping internationally four months prior to the conversation.
• International sales have already reached 10% of total sales without marketing.
• Plans to establish one or two outposts in Asia due to high demand for luxury goods.
• The current focus is on dominating the U.S. market before expanding globally.

"Yes. So we just started shipping internationally about four months ago, and that has been an exceptional, it started as an experiment, it's become an exceptional success for us without any bit of marketing."

This quote indicates the successful initial foray into international sales, suggesting a strong market demand and potential for growth without the need for initial marketing efforts.

• Venture Capital (VC) firms are experiencing increased competition due to the abundance of capital.
• Firms must differentiate themselves to attract investment opportunities.
• Specialization and becoming subject matter experts are key strategies for VCs to stand out.

"And with the extremely attractive prospects for companies like the real real and the increasing amount of capital available, vcs face greater competition between firms."

The quote emphasizes the competitive nature of the VC industry, necessitating differentiation strategies for firms to succeed in attracting investments.

• VCs are transitioning from generalists to specialists.
• New entrants are advised to focus on a specific area and develop a deep understanding and network.
• Differentiation is achieved through subject matter expertise and branding.

"So what I advise new entrants into the VC market or junior people to do is really to differentiate based on a franchise."

This quote advises new VC entrants on the importance of specialization and developing expertise in a particular area to differentiate themselves in a crowded market.

• Maha Ibrahim chose to specialize in data center infrastructure software based on her background.
• She has had successful exits and recent investments in this niche.
• Maha also makes generalist investments but emphasizes her specialty area.

"And that's again, aside from the more generalist investments of Kabam, which is the mobile gaming company we mentioned. And they're real, real. But again, the sweet spot being that data center software area..."

Maha illustrates her investment strategy, highlighting her focus on data center infrastructure software while also engaging in more generalist investments, demonstrating a balanced approach.

• Market timing and size are critical factors for VC investment success.
• Entrepreneurs need to convince VCs of the market potential and their product's capability to dominate that market.
• Founders should exhibit intelligence, drive, nimbleness, and humility to succeed.

"We lose money as vcs, as early stage vcs, largely because we've gotten the market timing or the market size wrong."

This quote reflects on the common pitfalls in venture capital investments, emphasizing the importance for entrepreneurs to present a compelling case regarding market dynamics to VCs.

• Companies often need to pivot, but the extent varies.
• Pivots can involve changes in sales strategy, marketing audience, or even a complete product overhaul.
• The need to pivot is influenced by market feedback, the target market, and technical challenges.

"There are very few companies that don't have to pivot. How much they pivot is a different story, and it depends on, again, what the market feedback is."

This quote emphasizes the commonality of pivots in the startup world and highlights that the degree and nature of a pivot depend on external feedback from the market.

• Maha Ibrahim prefers entrepreneurs to contact her through referrals.
• Referrals should come from credible sources such as entrepreneurs she's worked with, portfolio companies, other VCs, or attorneys.
• She focuses on Series A and some seed investments, primarily in data center infrastructure software, but also considers consumer deals.

"So what I'd like to do is have people come through a referral, whether it's a referral from an entrepreneur I've worked with before, or people in my portfolio companies or other vcs or attorneys..."

This quote outlines Maha Ibrahim's preferred method of being contacted by entrepreneurs, which is through a referral network, indicating the importance of credibility and relevant investment focus.

• Maha Ibrahim looks for companies that can cause massive market transformations.
• She mentions the success of Lending Club as an example of a disruptive company in her portfolio.
• Current investment focus includes companies in the container technology space, such as Mesosphere, Docker, and CoreOS, which aim to disrupt traditional virtual machine usage.

"So we're looking for companies of massive disruption. In my area in particular, containers are now the new thing."

This quote explains Maha Ibrahim's investment strategy, which targets companies that have the potential to disrupt existing markets, specifically highlighting the emerging container technology sector.

• Maha Ibrahim measures success by the progress and exits of her portfolio companies.
• The success of her investments reflects her performance as a VC.

"By my company's success."

This quote succinctly conveys how Maha Ibrahim measures her success as a VC, which is directly tied to the achievements of the companies she invests in.

• The hardest part of being a VC for Maha Ibrahim is witnessing the failure of companies.

"Seeing companies fail."

This quote captures the difficulty that VCs face when companies in their portfolio do not succeed, highlighting the inherent risks of venture capital.

• Maha Ibrahim's most recent investment was in Cluster HQ, a company in the container space offering storage solutions for containers.
• The decision to invest was influenced by her previous professional relationship with the CEO, Mark Davis, and the company's promising position in a technology space she is actively investing in.

"My most recent investment was in a company called Cluster HQ. It is a former CEO of mine, Mark Davis, who sold his company a couple of years ago to VMware."

This quote reveals the rationale behind Maha Ibrahim's latest investment decision, which includes both the potential of the container technology market and her trust in the CEO's previous success.