20VC Floodgate's Mike Maples on What Makes Category Kings, What Most Venture Funds Do Wrong When Hiring & 'The Dance Of Product Market Fit'

Summary Notes


In this episode, the host welcomes Mike Maples, founding partner at Floodgate—a leading early-stage venture fund. Maples, renowned for his investments in major companies like Twitter and Twitch and a regular on the Forbes Midas list, discusses the evolution of startup funding and the gap he aimed to fill with Floodgate. He highlights the dramatic reduction in startup costs due to technological advancements and how this created opportunities for a more diverse range of entrepreneurs. Maples also delves into his investment philosophy, emphasizing the importance of accountability and the 'pound the table' approach to decision-making within his team. The conversation further explores the dynamics of product-market fit, the significance of category kings, and the future challenges and vision for Floodgate, underscoring the value of exceptionalism and the potential of startups to bring abundance to the world.

Summary Notes

Introduction to Mike Maples and Floodgate

  • Harry Stebbings expresses excitement for interviewing Mike Maples, a top investor on his secret list.
  • Mike Maples is a founding partner at Floodgate, a leading early-stage venture fund in Silicon Valley.
  • Maples has invested in companies like Twitter, Twitch, Weebly, Chegg, and more.
  • He has been recognized on the Forbes Midas List and by Fortune magazine.
  • Prior to investing, Maples founded and led startups to IPOs, including Tivoli Systems (IBM) and Motive (Alcatel Lucent).
  • Special thanks to Anne Murako for introducing Harry to Mike Maples.

Oh my God, I am so excited for today's episode. Ever since I started the 20 minutes vc, today's guest was one of the five names on my very secret list of investors that I most wanted to interview throughout the process.

Harry Stebbings highlights the significance of interviewing Mike Maples, indicating his prominence and influence in the venture capital industry.

Sponsors: Wealthfront and Angel Loop

  • Wealthfront is endorsed for its financial advisory services combining financial expertise with Silicon Valley engineering.
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  • Angel Loop is a platform for investor-founder relations, helping companies track performance and update investors.
  • Angel Loop offers a trial with a promo code, emphasizing its utility in enhancing communication and data sharing.

Being a financial whiz in today's complicated world of finance can be really challenging, and that's one reason I'm such a big fan of wealthfront.

Harry Stebbings discusses the complexities of modern finance and endorses Wealthfront for its ability to simplify financial planning and investment.

Founding of Floodgate and the Funding Gap

  • Mike Maples founded Floodgate following his entrepreneurial experience in Austin, Texas.
  • The "aha moment" came from observing the reduced cost of starting a company due to technological advancements.
  • Maples coined the phrase "500,000 is the new 5 million" to describe the changing landscape of startup funding.
  • Founders faced a funding gap between small angel investments and larger Series A rounds.
  • Maples started by investing his own money before raising a fund in 2006.

Yeah. So I used to live in Austin and I had been an entrepreneur. I was involved with a couple of startups.

Mike Maples explains his background as an entrepreneur, which led to his insight into the funding gap and the foundation of Floodgate.

Institutionalizing Floodgate and Venture Impact

  • Mike Maples was inspired by the potential for Floodgate to have a legendary impact on the venture business.
  • He saw an opportunity to create a new category of firm in the micro VC sector.
  • Maples recognized the democratization of innovation, with diverse entrepreneurs emerging due to lower startup costs.
  • Floodgate aimed to be gender and ethnically balanced and to invest in companies led by a new wave of entrepreneurs.

And I had this thought that we had a chance, if we did a few things right, to have a legendary impact on the venture business.

Mike Maples expresses his ambition for Floodgate to revolutionize the venture capital industry and create a lasting legacy.

Scaling the Fund and Investment Decision Making

  • Scaling Floodgate involved maintaining investment quality while growing the team.
  • The challenge for VC firms is to ensure all investors are high-caliber and contribute positively.
  • Maples emphasizes the importance of team dynamics and decision-making processes free from politics.
  • The goal is for the team to be greater than the sum of its parts, with each member adding value.

Ultimately, here is the problem with a firm, any firm, and then there's also an opportunity.

Mike Maples discusses the inherent challenges and opportunities in scaling a venture capital firm while maintaining investment excellence.

Decision-Making Dynamics in Venture Capital

  • In venture capital, individual insights are crucial, but group decision-making can lead to better outcomes than individual choices.
  • The risk of "groupthink" is acknowledged, where consensus-driven decisions may stifle unique insights.
  • Floodgate aims to balance group decision-making with the preservation of individual conviction to make better collective decisions.

"So what our challenge has been and remains is how can we make sure that as a group, we're making better decisions than we would have as a random collection of individuals."

This quote emphasizes the ongoing challenge of improving group decision-making to surpass the effectiveness of individual choices.

Investment Philosophy and the "Pound the Table" Rule

  • Floodgate observes that the best investment opportunities often seem "crazy" at the time of decision.
  • Examples given include Twitter's initial uncertainty and Twitch TV's (Justin TV) unconventional beginnings.
  • Floodgate has a "pound the table" rule where there is no voting system; an investment occurs only if someone is passionately in favor and willing to be accountable.

"For a deal to happen, someone has to pound the table... Somebody has to be irrationally in love with the project, and somebody has to say, I'm willing to assign a part of my personal fund checkbook to this investment."

The quote describes Floodgate's unique approach to investment decisions, requiring a team member to have a strong, almost irrational belief in a project to proceed with funding.

Accountability and Fund Allocation

  • Floodgate assigns each team member a "checkbook" to invest in deals they strongly believe in, ensuring accountability for their decisions.
  • The fund starts with equal allocations but can adjust to double down on successful investments collectively.
  • Venture capital is seen as a team sport, balancing individual accountability with collaborative success.

"We start out saying, okay, with the beginning of a fund, everybody's going to roughly have a certain size checkbook."

This quote explains the initial allocation of investment funds to team members, emphasizing individual accountability for investment choices.

Follow-On Funding Strategy

  • Floodgate's follow-on funding philosophy is to "always play offense with your money," focusing reserves on winning companies.
  • Discipline and integrity are vital in deciding when to follow on and when not to, avoiding endless support for failing ventures.
  • The founders' time is highly valued, and they should focus on projects with exceptional potential.

"Ultimately, we have to have discipline and integrity about which ideas are working and which ones aren't."

The quote highlights the importance of discerning which ventures to continue supporting based on their performance and potential.

Approaching Bridge Financing

  • Bridge financing should be a well-defined path to the next funding round, not an indefinite extension of funds.
  • Bad bridge scenarios often involve companies running out of money with no clear plan for additional funding.
  • Integrity in using follow-on money is crucial for both venture capital firms and founders.

"Most bridges really aren't bridges. They're what I would call a pier... That's an example of a bad bridge."

This quote clarifies the difference between a strategic bridge financing round and a poorly planned request for additional funds.

Building Teams at Floodgate

  • Floodgate doesn't recruit based on expertise in a specific area due to the fast-changing nature of the business.
  • Mental agility and the ability to quickly adapt to different spaces are valued over specialized knowledge.
  • Cultural fit and curiosity are crucial when bringing new individuals into the team, with a long-term value creation perspective.

"We don't recruit people based on their expertise in a certain area... Because the business changes so fast, and we need to have the types of people who have sort of the mental agility to move from space to space really fast."

This quote explains Floodgate's hiring philosophy, prioritizing adaptability and cultural fit over specific domain expertise.

Hiring and Team Building

  • The recruitment process is crucial in team building, requiring significant time investment upfront.
  • A correct hiring decision has long-term positive impacts, while a wrong one has long-lasting negative consequences.
  • At Floodgate, a unanimous vote is required to bring someone new on board.
  • A poor hiring choice can affect future recruitment and the quality of decision-making in the team.

"And so the meta lesson I've learned about recruiting is that you want to spend a huge amount of time upfront, because if you get the decision right, it pays you back forever."

This quote emphasizes the importance of dedicating ample time to the hiring process to ensure the right decision is made, which will have enduring benefits.

"And conversely, if you get the decision wrong, it punishes you forever, because so far, at least at Floodgate, in order for us to bring somebody new on board, there has to be a unanimous vote."

The quote highlights the high stakes of hiring decisions at Floodgate, where a unanimous vote is required, signifying the collective responsibility in recruitment choices.

Product-Market Fit

  • Product-market fit is described as a dance between the product and the market.
  • Companies must understand who will value their product's advantages and why.
  • Founders should not rush when choosing the market opportunity for their company.
  • The process of achieving product-market fit involves iterative development and market engagement.

"And so at any given point, when somebody is building a product, we encourage them to sort of understand not just what your advantage is that you're building, but who's going to value that advantage."

This quote stresses the importance of understanding the target audience and the unique selling proposition of the product being developed.

"And so part of the dance of product market fit as well, is sort of respecting the value of picking the right market in the first place."

This quote conveys the idea that selecting the appropriate market is a critical component of achieving product-market fit and should be respected as such.

Venture Capital Picking vs. Access

  • Venture capital success is influenced by both picking the right opportunities and gaining access to top funds.
  • For limited partners, access is crucial due to the performance of only a small fraction of venture funds.
  • In early-stage investing, picking skills are more important, while branding and reputation play a larger role in later stages.
  • Identifying future market shifts is crucial for early-stage venture capital success.

"I would say that the earlier you invest, the more important picking skills become."

This quote suggests that the ability to select promising opportunities is particularly vital for early-stage investors.

"Being able to identify the future capitalist mutations is even more important."

The quote implies that early-stage venture capitalists must have the foresight to recognize and invest in emerging market trends.

Category Creation

  • Category creation involves establishing a new market and changing customer spending habits.
  • Category kings aim to create a movement and enlist support beyond just employees and customers.
  • The objective is to redefine customer spending in a way that favors the company's products or services.
  • Successful category kings, like Starbucks and Salesforce, have significantly altered consumer and business spending behaviors.

"So, for example, Starbucks convinced the world that they no longer needed to spend only $0.50 for a cup of coffee, but rather should spend $4 for a latte or more money, even for a basic cup of coffee."

This quote illustrates how Starbucks created a new category in the coffee market by changing consumer perceptions of the value of coffee.

"Know, how can we define some new market real estate that causes a corresponding change in how the customer spends their money, and the change in how they spend becomes biased towards your solution and your approach?"

The quote encapsulates the essence of category creation: defining a new market space that shifts customer spending habits in favor of the company's offerings.

Favorite Book and Reason

  • Mike Maples mentions "The Top Five Regrets of the Dying" by Bronnie Ware as his favorite book.
  • He has paid a lot of attention to it recently, indicating its significant impact on him.

There's a book written by a woman named Bronnie Ware called the top five regrets of the dying that I like a lot, and I've paid a lot of attention to it recently.

  • This quote highlights the book's influence on Mike Maples and suggests that it resonates with his personal or professional life.

Highlight of the Floodgate Journey

  • Mike Maples recalls moments when he realized Floodgate's success, particularly with Twitter.
  • The State Department's request to Twitter during the Iranian election and a conversation with a mother at his daughter's playdate are key memories.
  • Seeing Twitter's widespread use and recognition confirmed the company's success for him.

One time I was at Twitter and somebody told me that the State Department had asked them not to bring their servers down for daily maintenance because the State department thought that the Iranian election was being stolen and that the tweets that were coming out of it were going to be an important part of the historical.

  • This quote demonstrates the global impact Twitter had and Mike Maples' realization of its significance.

So I guess that was seeing Twitter do really well and then later on seeing hashtags everywhere and seeing tweets stream on tv all the time. That was really gratifying.

  • This quote reflects on the broader cultural integration of Twitter, which was a source of gratification for Mike Maples.

Lessons Learned in Venture Capital

  • Mike Maples wishes he had a stronger belief in investing time in exceptional people and companies.
  • He emphasizes the importance of maintaining a high-quality bar and avoiding the fear of missing out.
  • The biggest lesson is to focus on exceptionalism and not compromise on the quality of the founders or ideas.

I wish that I had believed even more what I believed, which is it's all about exceptional people and exceptional companies.

  • This quote underscores the importance of exceptionalism in Mike Maples' investment philosophy.

The number one reason I pass on companies is I don't think the idea is worthy of the founder's talent.

  • This quote reveals Mike Maples' criteria for investment decisions, focusing on the alignment of founder talent with the idea.

Preferred Sources of Information

  • Mike Maples does not have a specific favorite blog or newsletter.
  • He uses Twitter to find interesting content serendipitously.

Usually I just go through Twitter and I just go through my Twitter stream and just serendipitously click on what seems good.

  • This quote shows Mike Maples' casual and opportunistic approach to consuming information.

Future Challenges for Floodgate

  • The challenge for Floodgate is to enhance their performance to compete with top venture capital firms.
  • Mike Maples aspires for Floodgate to have a lasting impact, including contributing to the construction of buildings through investment returns.
  • The goal is to continuously improve and achieve sustained long-term performance.

The biggest challenge for us is to go from being one of the early groups of people who defined the micro-VC landscape to building a fund that competes as a team as well as the very best.

  • This quote outlines the aspirational goals for Floodgate to be a top competitor in the venture capital industry.

Vision for Scaling Floodgate

  • Floodgate does not aim to become a large fund like Series A investors.
  • The vision is to excel in the micro-VC space and to fund startups that harness exponential technologies to bring abundance to the world.
  • Mike Maples emphasizes funding early, high-risk opportunities before they become widely acknowledged.

I think that we want to do in the micro-VC space what Benchmark and Sequoia have done in the Series A arena, have the absolute best product for entrepreneurs seeking capital and the absolute best returns, the best companies.

  • This quote reflects Floodgate's ambition to be the best in their niche, mirroring the success of renowned firms in a different investment stage.

Most Recent Public Investment

  • Mike Maples discusses investing in a company called Dispatcher.
  • Dispatcher uses dynamic mapping data to optimize the deployment of field employees, which can lead to significant savings and improved safety.
  • The investment was made based on the company's deep technology and the compelling problem it solves.

One of our most recent investments is a company called Dispatcher. And what they've done is very clever.

  • This quote introduces Dispatcher and hints at the innovative solution the company provides.

If you can solve that problem, you create huge dollar savings for PG&E, but more importantly, a lot fewer power outages and fewer fires and safety hazards.

  • This quote explains the practical benefits of Dispatcher's solution, highlighting the reasons behind the investment decision.

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