20VC Floodgate’s Mike Maples on 3 Key Breakthroughs Startups Experience in Success, The Rise of Angel and Operator Funds, MultiStage Funds ReEntering Seed Investing and The Insight Development Framework

In this insightful conversation, host welcomes Mike Maples, founder and partner at Floodgate, a prominent seed investment firm with successful bets like Lyft, Twitch, and Twitter. Maples, a seasoned investor and Forbes Midas list regular, shares his venture philosophy, highlighting the importance of identifying and investing in startups based on breakthrough insights rather than current market trends. He emphasizes the critical 'why now' factor, asserting that true startup success often stems from technology inflections and adoption inflections, as seen with Lyft's ride-sharing model. Maples also discusses the challenges of excessive capital raising and the potential pitfalls of skipping essential developmental steps. Additionally, the conversation touches on the changing venture capital landscape, including the rise of operator and angel funds, the re-entry of multistage funds into seed investing, and the strategic importance of maintaining focus and resisting the fear of missing out (FOMO). Lastly, Maples introduces Common Stock, a social platform for verified stock trading insights, exemplifying the type of innovative, future-focused venture he champions.

• Mike Maples, a mentor and friend to the host, is a founder and partner at Floodgate.
• Floodgate is a leading early-stage firm with investments in Lyft, Twitch, Twitter, Okta, and Sonos.
• Mike has been on the Forbes Midas list since 2010 and named one of eight rising stars by Fortune magazine.
• Prior to investing, Mike was involved in founding and operating companies that had successful IPOs.

"Mike Maples, founder and partner at Floodgate, one of the leading early stage firms of the last decade, with investments in the likes of Lyft, Twitch, Twitter, Okta and Sonos, to name a few."

This quote introduces Mike Maples and highlights his significant role in seed investing and the success of his firm, Floodgate.

• Mike Maples hosts a podcast called "Starting Greatness."
• He was a founder and executive at Tivoli Systems and Motive, which were acquired by IBM and Alcatel respectively.

"Mike's own incredible podcast starting greatness, that really is a must."

The quote emphasizes the quality of Mike Maples' podcast, which is recommended listening for insights into entrepreneurship and venture capital.

• HelloSign, an esignature solution, raised $16 million and was acquired by Dropbox for $230 million.
• Headspin provides mobile app performance monitoring and user experience analytics.
• Headspin was founded by former engineers from Amazon, Zynga, and Google.

"Hello Sign is an effortless esignature solution used by millions to securely send and request legally valid digital signatures and agreements."

This quote describes the services provided by HelloSign, illustrating the importance of user experience in product success.

• Mike transitioned from being an entrepreneur in Austin, Texas, to venture capital.
• He moved to California in 2004 to pursue venture capital opportunities and founded Floodgate after 18 months.

"I decided if I was going to be in venture, I needed to do it in California."

This quote explains Mike's strategic decision to move to California, a hub for venture capital and startups, to advance his career in the field.

• Mike defines a startup as a series of breakthroughs rather than a company.
• There are three types of breakthroughs: insight, value proposition, and growth.
• Mike has focused on value proposition breakthroughs and is now developing insight development frameworks.

"A startup isn't a company because it starts out dead and has to prove it's alive."

Mike Maples explains that a startup must achieve a series of breakthroughs to demonstrate its viability, distinguishing it from an established company.

• Insight development involves identifying non-obvious discoveries based on technology inflection.
• Mike emphasizes the need to have a breakthrough insight before customer development and growth.

"Insight development is about getting out of the present."

This quote highlights the forward-thinking nature of insight development, where entrepreneurs must envision the future to identify opportunities.

• Mike cautions against raising too much money too soon, as it can lead to a false sense of progress.
• He stresses the importance of not skipping steps in the startup development process.

"If you invest a lot of money to grow before you're ready to grow, you'll waste your money."

Mike Maples warns that premature funding can lead to inefficient growth and hinder a startup's long-term success.

• Entrepreneurs should have high confidence in their insight before transitioning to customer development.
• Mike compares the startup process to a car rental policy, where once you commit to a direction, reversing can be catastrophic.

"You got to have an insight before you do customer development."

This quote emphasizes the sequential nature of startup development, where each phase builds upon the previous one.

• Mike discusses how startups define markets through movements, not traditional market mapping.
• He contrasts the approach of startups to that of established companies, using the analogy of prophets versus Bible salesmen.

"The product defined the market."

Mike Maples explains that in the context of startups, innovative products create new markets rather than entering existing ones.

• Mike identifies the ability to foresee technological capabilities as a common trait among successful entrepreneurs.
• He uses the example of Justin.tv, which evolved into Twitch, to illustrate investing based on insights rather than current business metrics.

"It's not investing in a business, because it's not a business yet."

This quote clarifies that seed investing focuses on the potential of an idea and the entrepreneur's vision for the future, rather than the present state of the business.

• The founding team's attributes are crucial for the success of a startup.
• A combination of entrepreneurial spirit, persuasiveness, technical depth, and a strong team is often a good sign for future success.

"And entrepreneurial and persuasive and technically deep is the founding team. And if you can get those things together in one place, usually it's a pretty good bet, even if you're not sure how the dots will connect in the future."

The quote highlights the importance of having a founding team that possesses a blend of entrepreneurial mindset, the ability to persuade stakeholders, and deep technical knowledge. These attributes together increase the likelihood of a startup's success.

• Mike Maples discusses the framework for developing insights that lead to successful startups.
• The first part of the framework is to understand the "why now?" aspect of the startup idea.

"The first is sort of the why now? And it combines a few thoughts. So I like to say that almost every startup idea you can imagine has been tried before."

Mike Maples introduces the "why now?" question as a critical part of evaluating a startup's potential. It involves assessing why a particular idea is likely to succeed at the current time, as opposed to past attempts.

• Technology inflection and adoption inflection are crucial elements of the "why now?" question.
• Maples uses Lyft as an example, where technology and adoption inflections made the concept viable.

"The technology inflection was the GPS locators in smartphones were ten times more accurate with the iPhone three GS and beyond... The adoption inflection was, we believe that within a few years, you'll be able to assume that all riders and all potential drivers will have smartphones."

This quote explains that technological advancements and widespread adoption of new technologies (like smartphones with accurate GPS) were key factors that enabled the success of ride-sharing platforms.

• Distinguishing between technology inflections and macroeconomic conditions is important when analyzing startup potential.
• Maples emphasizes the calibration of technology inflections rather than attributing success to macroeconomic factors.

"Well, the way I look at it is it's a good idea to calibrate an inflection... What I see in too many startups today is statements like, well, society's just changing and they're ready for this and they weren't before."

Mike Maples stresses the importance of identifying and measuring technological shifts rather than making vague statements about societal readiness. Successful startups often ride the wave of a technological inflection point.

• Mike Maples talks about the importance of betting on what is currently improbable but may become probable in the future.
• This concept is likened to seeing a mispriced potential future, akin to a time traveler's perspective.

"When we spoke before, you said, also when it came to kind of calibrating your own bet, to bet on a present improbable because time travelers see a mispriced potential future."

The quote introduces the idea of betting on outcomes that may seem improbable at present but have the potential to manifest in the future due to mispriced expectations.

• Maples acknowledges the risk of confirmation bias in investment decisions.
• He suggests that getting into the right frame of mind, like thinking like a time traveler, can help in developing true insights.

"Yeah, and I think probably more often than not, an insight will be wrong. But I guess to me, the important thing is to get into the right frame of mind."

This quote recognizes that while insights may often be incorrect, the process of developing insights is important. Thinking beyond the present can lead to breakthroughs that others may not see.

• Maples advises startups on how to plan for the future amid uncertainty.
• He emphasizes accurate short-term forecasting and suggests a minimum three-year runway for startups.

"The first is that a lot of these plans that I see founders making right now, they ask questions like, should I increase my 2021 forecast by 30%? Should I drop it by 50%? How should I change my forecast?"

Mike Maples critiques the tendency to make overly specific long-term forecasts and suggests focusing on the immediate future, where predictions can be more accurate.

• There is a discrepancy between public statements and private actions of VCs regarding their openness for business during uncertain times.
• Maples questions the authenticity of VCs' claims about being open for business and suggests that the funding market may not be as fluid as publicly portrayed.

"We've seen every VC on Twitter bluntly say open for business. I've done three deals this week, term sheets going out, and then I speak to them behind the scenes and it's a different story."

The quote points out the contrast between what venture capitalists publicly claim about their investing activity and what is happening privately, indicating a potential mismatch in the perception of the funding market's liquidity.

• Mike Maples predicts a meaningful pullback in VC funding as the market reassesses future conditions.
• The previous assumption that funding would be readily available for startups may no longer hold true.
• VCs may adopt a wait-and-see approach due to uncertainties in the market.
• Mike Maples emphasizes the importance of focusing on insights to find great companies to fund, regardless of market conditions.
• Momentum players in the VC industry might face challenges in the current environment.

"So we've just come out of a world where people raise money, assuming they can raise money again within twelve to 18 months in an upround, and the money would always be available. If you met certain milestones, that may be true, that may not be true on a go forward basis."

This quote highlights the shift in the VC funding landscape where the previous norm of readily available funds for startups meeting milestones is now uncertain.

• Mike Maples expresses skepticism about the value of VC tweeting and market chatter.
• He prefers to focus on meeting founders and seeking insights rather than getting distracted by public declarations.
• The emphasis is on the founders' mindset and strategies to thrive amidst uncertainty, rather than market sentiment.

"I found that the VC tweet stuff doesn't contribute to my understanding very much."

Mike Maples dismisses the influence of VC tweeting on his investment decisions, suggesting that actions behind the scenes are more indicative of true market movements.

• Mike Maples views the rise of angel and operator funds positively and offers support to new investors.
• He shares his early experiences and strategies with new investors to contribute to the ecosystem.
• The future of these funds is uncertain, but Maples encourages founders to feel empowered despite uncertainty.
• He stresses the importance of antifragility for startups in navigating capital markets.

"Generally, I like them, and so I try to do everything I can to be helpful."

Mike Maples expresses his support for the emergence of angel and operator funds, indicating a collaborative approach to ecosystem development.

• Mike Maples observes that multistage funds diversify their strategies during heated markets.
• He advocates for investment firms to maintain a focused strategy for long-term success.
• Maples acknowledges different approaches to investing but emphasizes the importance of not being indecisive.
• The discussion reflects on the tension between fear of missing out (FOMO) and the joy of finding greatness in investment opportunities.

"Usually I tend to believe that the best long term strategy is to be more focused and not less, and that if you're not positive you're focused, you're probably not."

Mike Maples suggests that a focused long-term strategy is more beneficial for investment firms, rather than diluting their efforts across too many areas.

• Mike Maples discusses his experience with FOMO, focusing on missed opportunities with great companies.
• He reflects on missed investments and the importance of learning from those experiences.
• Maples advises against worrying about every potential deal and instead emphasizes learning from missed opportunities.

"The thing that bugs me most is actually not that. It's like when I see greatness and didn't realize it."

Mike Maples shares that his FOMO stems from not recognizing potential in great companies rather than missing out on deals in general.

• Mike Maples explains his preference for a smaller, more artisanal fund size that matches his personality.
• He believes in doing "less but better" and prioritizing essential activities for excellence.
• Maples discusses the importance of aligning fund size with investment strategy and not getting caught up in non-essential activities.

"I just think it was more of a match with my personality."

Mike Maples attributes his choice of maintaining a smaller fund size to a personal preference aligned with his investment philosophy.

• Mike Maples does not fully agree with the notion that building ownership over time is challenging due to aggressive multistage funds.
• He cites examples of seed funds that have successfully owned significant stakes in companies at IPO.
• Maples encourages investors to focus on their unique strategies rather than getting distracted by what others are doing.

"I think that you can win either way, right? I think either strategy works in series a."

This quote reflects Mike Maples' belief that both multistage and focused seed funds can be successful with the right strategy.

• Mike Maples prefers working with founders outside of board meetings and focuses on identifying the one critical issue that can transform a startup's trajectory.
• He uses the metaphor of "Herbie" from the book "The Goal" to illustrate the importance of addressing the slowest hiker (biggest bottleneck) to improve overall performance.
• Maples discusses the balance between taking board seats and managing time effectively.

"Most of the work I do with founders I like to do outside of board meetings."

Mike Maples emphasizes the value of working with founders beyond formal board meetings to address key challenges and opportunities.

• Mike Maples discusses the importance of identifying the main issue, or "Herbie," that's preventing a startup from achieving strong product-market fit.
• He emphasizes the need to focus energy on fixing the primary problem rather than secondary issues.
• For instance, if customer engagement is the issue, acquiring more customers is counterproductive.
• A changing "Herbie" every two weeks indicates a lack of clear agenda and possible flailing.

"What's your Herbie? What is the number one thing between us and strong product market fit?"

This quote highlights the need for startups to pinpoint the central problem hindering their progress towards product-market fit.

• Mike Maples has increased his marketing and brand presence through a new podcast and Twitter activity.
• He started his podcast, "Starting Greatness," to offer consistent advice on the zero-to-one phase of startups, focusing on pre-product market fit.
• Maples aims for quality content over quantity, preferring to create evergreen content that remains relevant over time.
• His podcast is a labor of love, meant to help founders through the ideas of successful entrepreneurs.

"I didn't really look at it as much, though as a marketing strategy. I mean, I hope we get positive attention for it."

The quote suggests that while the podcast was not initially a marketing strategy, positive attention from it is welcome.

• Mike Maples talks about the challenge of time allocation across portfolio companies.
• He believes in focusing on companies that need help at the moment, regardless of whether they are "winners" or "losers."
• Maples values the personal connection with founders and the ability to assist them when needed.

"Whoever needs help now, you just try to do the best you can, and some are going to work out, some won't work out."

This quote reflects the pragmatic approach to supporting portfolio companies based on their immediate needs.

• Mike Maples is cautious about judging the performance of new fund managers too early.
• He believes time is needed to see who has made the best investments.
• Maples gives new managers the benefit of the doubt and aims to support them where possible.

"It's really hard to know without some time who's made the best investments and who's not going to work out."

This quote conveys the difficulty in assessing the success of new fund managers without the perspective of time.

• Mike Maples identifies the challenge of staying original and proactive in thinking about ideas that will create successful companies.
• He mentions the difficulty of avoiding the "herd noise" and hype in the venture capital industry.
• The venture landscape has become noisier with more competitors and self-promotion.

"Are we being proactive enough in thinking about original ideas that will help create great companies and really good returns?"

This quote questions the proactive nature of venture capital firms in generating original and successful investment ideas.

• Mike Maples expresses concern about the increase in self-promotion within the venture landscape.
• He notes that while some personal platforms are understandable, there is an excess of noise from numerous newsletters and tweets.

"It's gotten a little bit too self promotional, I think."

This quote reflects Maples' view that the venture landscape is becoming overly focused on personal branding.

• Mike Maples admires several individuals for their effectiveness on company boards.
• Notable names include Bill Gurley, Mike Moritz, Bruce Dunleavy, Peter Fenton, Jim Breyer, and Bill Wood.
• He values their clarity of thinking about startups and board operations.

"I would say that Bill Gurley at benchmark was impressive on the demand force board."

This quote signifies Maples' respect for Bill Gurley's performance on a specific company board.

• Mike Maples is excited about an investment in Common Stock, a social platform for trading stock market ideas and insights.
• Common Stock allows users to connect brokerage accounts and verify trades, creating a digital record.
• He sees potential in the platform's ability to use verified trading information for various applications.

"What they are is a social platform for people to trade ideas and insights about stocks and the markets."

This quote describes the core function of Common Stock, highlighting its innovative approach to stock market discussions.