20VC Investing Lessons From Observing Doug Leone and Bill Gurley, Why It Is Easier To Be Contrarian As A VC Than As An Angel & What It Takes To Run Tinder's Product and Revenue Alongside A Seed Fund with Jeff Morris Jr, Founder @ Chapter One

In this episode of 20 Minutes VC, host Harry Stebbings interviews Jeff Morris Jr., the multifaceted founder of Chapter One Ventures and Director of Product and Revenue at Tinder. Jeff shares his journey from USC film school to tech entrepreneur, emphasizing the importance of deep industry knowledge and a product-focused approach to both operating and investing. With Chapter One, he's invested in companies like Lyft and Cryptokitties, while at Tinder, he propelled the app to the top grossing spot globally. Jeff also discusses the dynamics of mobile and blockchain investing, the art of product management, and the value of contrarian thinking. He advises founders to be proactive, focus on building great products, and not to get hung up on location or valuation during fundraising. Additionally, Jeff touches on the pitfalls of rapid fundraising rounds in the crypto space and the importance of due diligence.

• Jeff Morris Jr. is the founder of Chapter One Ventures, an early-stage seed fund.
• Chapter One Ventures focuses on investments in blockchain assets, mobile, and subscription businesses.
• Portfolio includes Lyft, Brandable, CryptoKitties, and other notable companies.
• Jeff Morris Jr. also holds a significant role at Tinder as the Director of Product and Revenue.

"Our guest today, he's truly unique as he doesn't only manage to wear both operating and investing hats simultaneously, but my word, he does it with insane success."

This quote highlights Jeff Morris Jr.'s unique position in the industry, successfully juggling roles as both an operator and investor.

"Now, Jeff is the founder of chapter one, an early stage seed fund investing in blockchain assets, mobile and subscription businesses."

This quote provides specifics about the focus areas of Chapter One Ventures and Jeff's role as its founder.

• Jeff attended USC film school and planned to become a producer.
• The 2009 recession led him to pivot to technology and move to San Francisco.
• Jeff's tech career began through networking on Twitter, leading to his first job in tech with Zarley.
• Transitioned from an operator to an investor by conducting due diligence on products and investing in companies he believed in.
• Launched an AngelList syndicate, gaining popularity and providing entrepreneurs with larger, consolidated investments.

"So I actually went to USC film school and I thought I was going to be a producer for a long time, and I think graduate USC film school was about 2009, and that was right when the recession was happening."

This quote explains Jeff's initial career aspirations and the circumstances that led him to the tech industry.

"I ended up asking them if I could actually invest in their companies."

Jeff's transition from an operator to an investor was sparked by his interest in the companies he was evaluating for potential partnerships or integrations.

• Jeff applies an investor's mindset to product management decisions.
• He assesses the risk and return profiles of potential products, similar to evaluating investment opportunities.
• Believes product managers should understand portfolio theory and manage their products with an investor's approach.
• Skepticism and inquisitive nature derived from investing experience enhance his product decision-making.

"I apply an investor's mindset to every product decision I make."

Jeff uses his investing experience to inform his product management strategy, emphasizing the importance of resource allocation and impact assessment.

"It's the same process with investing. You have a capital pool and you have to deploy it, and how do you want to spend that capital?"

This quote draws a parallel between product development and investing, where both require strategic deployment of limited resources.

• Jeff acknowledges a higher loss ratio in product optimization and experimentation phases, which is expected and encouraged.
• A high loss ratio for significant product initiatives can be detrimental to a company.
• The scale and scope of the product determine the acceptable level of risk and potential for loss.
• Fast experimentation with a nimble team is seen as beneficial, even if it results in some failures.

"If you're churning out products and it doesn't take that much time to build, you're learning a lot in a short period of time."

This quote emphasizes the value of rapid experimentation in product development, where the focus is on learning quickly from small-scale failures.

"If you're going for a big kind of blockbuster product hit and you lose, at the end of the day, that's a big loss and a big hit to your company and your resources."

The quote contrasts the impact of failure in large-scale product development versus smaller experiments, highlighting the importance of scale in risk management.

• Understanding and prioritizing one's roles is crucial for efficiency.
• The primary job, such as growing subscriptions and revenue at Tinder, should be the main focus.
• Investing requires finding extra time outside of work hours, often at the expense of personal time.
• Focusing on specific areas like mobile and blockchain can provide a competitive edge.
• Deep knowledge in focused areas is gained through personal time investment, such as participating in niche online communities.

"So my day job is to work at Tinder, to grow our subscriptions, to grow our revenue. And really, this is my core number one thing that I have to do when I wake up every morning."

This quote emphasizes the speaker's commitment to their primary role at Tinder, highlighting the importance of prioritizing one's main responsibilities.

"If you want to be an investor while you're operating, you have to find time."

The speaker underscores the need to allocate time effectively to pursue investment opportunities alongside a primary job.

"The only way I can have any edge in terms of competing with other venture capitalists is if I really go deep on one or two topics."

The speaker suggests that specialization in a few areas can provide a unique advantage in the competitive field of venture capital.

• Product-focused funds should involve hands-on assistance with product teams.
• Investors on cap tables often provide product advice, which can be helpful or detrimental.
• Founders should view investor advice as just another data point, not giving it undue weight.
• It's important to assess the practical product-building experience of investors before valuing their advice.
• Due diligence on investors' backgrounds and thought processes is crucial for founders.

"I love to actually roll up my sleeves with product teams and help with recruiting, prioritizing your roadmap, building relationships with your engineering team."

This quote highlights the speaker's proactive approach to engaging with product teams, indicating a hands-on investment style.

"The one thing founders must know is that investors advice is another data point."

The speaker advises founders to consider investor advice as one of many factors in their decision-making process, rather than giving it special status.

"Have these investors ever sat in the trenches and actually built products?"

The speaker suggests that founders should critically evaluate the practical experience of their investors to determine the value of their advice.

• Shared passion for product design among preferred co-investors.
• Appreciation for complex product development, especially in mobile, is a common trait.
• Co-investors who emphasize product quality are often chosen for collaboration.

"The people I love to invest with just love products."

The speaker expresses a preference for co-investors who share a passion for product development and design.

• Knowledge of Silicon Valley and software history is valuable for product developers and investors.
• Historical context can inform current product development and investment decisions.
• Understanding the evolution of a category, such as dating, can provide insights into future opportunities.

"I think the best product people I know have this really unique view on kind of Silicon Valley history, or more generally just software history."

The speaker notes that the most effective product developers have a deep understanding of the history of their industry.

• To become an investor, one must actively participate in investing, regardless of accreditation status.
• Practice and exposure to market cycles help identify interests and strengths.
• Theme-driven investing requires picking specific areas of focus.

"If you want to become an investor, you really have to figure out a way to start playing."

The speaker encourages aspiring investors to begin actively investing to gain experience and develop their skills.

• Belief in the continued relevance of mobile based on global trends and changing consumer tastes.
• The assumption that current popular apps will remain dominant is challenged.
• The potential for entrepreneurs to find gaps in the market and succeed despite large incumbents.

"By 2020, there will be 4.78 billion smartphone users in the world."

The speaker uses statistics to illustrate the vast and growing user base for mobile, supporting the case for continued investment in the sector.

• Integration of technologies like 5G, AR, and VR into mobile is anticipated.
• Market timing for these technologies is uncertain, but investing in the best entrepreneurs within these spaces is key.
• Role as investors to actively promote the technologies they want to see in the world.

"I think they'll integrate. The question, as always, is just timing."

The speaker believes that frontier technologies will become part of the mobile ecosystem but acknowledges the difficulty in predicting when they will become mainstream.

• Attempting to time markets is seen as unreliable and overconfident.
• Focus on backing the best entrepreneurs rather than trying to predict market movements.

"I don't try to time markets. I do try and just back the best possible entrepreneurs in a given space."

The speaker expresses a preference for selecting strong entrepreneurs over trying to time the market, suggesting a long-term approach to investing.

• Experience at Tinder demonstrates the powerful economics of mobile and digital products.
• Preference for mobile products that offer sustainable business models with high margins.

"Just because I see the power of mobile, I see once you kind of reach escape velocity, how incredible the economics can be, especially selling digital products."

The speaker's experience at Tinder informs their investment thesis, highlighting the lucrative nature of successful mobile and digital products.

• Observation that crypto entrepreneurs are often treated as exceptional by investors.
• Personal interactions with crypto teams can provide a more grounded perspective.

"I look at how investors treat crypto entrepreneurs and it's like they're superhumans."

The speaker comments on the tendency for investors to idealize crypto entrepreneurs, suggesting a disconnect between perception and reality.

• The crypto industry faces similar challenges as other sectors, including difficulties in hiring and delivering products.
• Unrealistic expectations are placed on crypto teams to deliver products rapidly, often based on white papers without written code.
• Patience is needed to see how crypto projects develop over time.

"So I think the thought there is, if you actually go and spend time with these entrepreneurs, they're having the same exact struggles as every other part of the industry."

This quote emphasizes that crypto entrepreneurs are not unique in their struggles and face common industry challenges, highlighting the need for realistic expectations and patience from investors.

• High investor expectations can lead to dangerous valuations and pressure on crypto projects.
• Employees may feel compelled to ship products prematurely, resulting in compromised quality.
• The long-term outcomes of these valuations on team psychology and product-market fit remain to be seen.

"But anytime you raise rounds, especially your seed rounds at absurd valuations, it just creates pressure within companies that is really tough for employees to grapple with."

This quote discusses the negative impact of high seed round valuations on employees, indicating that such pressure can affect product quality and employee morale.

• The advised Runway for startups varies depending on the CEO's ability to raise funds and the stage of the entrepreneur.
• First-time entrepreneurs are recommended to have a Runway of at least 24 months.
• Runway is crucial for allowing time to build a product before needing to raise additional funds.

"So I'm not as concerned about Runway in those cases, but if it's a first time entrepreneur, I do want to see 24 plus months, just to give me the assurance that they have time to build their product before they start raising money again."

This quote highlights the importance of a sufficient Runway for first-time entrepreneurs to ensure they have ample time to develop their product without the immediate pressure of raising more funds.

• Rapid funding rounds force venture capitalists to make uninformed decisions.
• Investors may not have enough time to thoroughly read white papers or perform due diligence.
• The speed of rounds compels investors to make quick decisions, potentially without adequate information.

"And so what I'm seeing a lot is investors making decisions. I question whether they're actually reading the white papers or doing diligence."

This quote reflects concerns about the lack of thorough due diligence by investors in fast-paced funding environments, suggesting that decisions may be made without fully understanding the technical details of projects.

• Diligence processes vary for each project, with a focus on product usage and expert consultation when necessary.
• Being an operator allows for leveraging internal expertise to evaluate projects, especially in areas like ML and AI.
• Founders often view operators-turned-investors as peers and valuable team members.

"So really I'm trying to dig into the product, but also find people to help me. And being an operator, you have a lot of support in that realm."

This quote explains the approach to due diligence, which includes personal engagement with the product and involving experts to gain a deeper understanding of the technical aspects.

• Trust and transparency are crucial in the initial investment calls.
• Investors seek to understand round dynamics and co-investor identities.
• Entrepreneurs should be open about who else is investing to build relationships with potential investors.

"And so if you know an investor is actually interested in your company and is talking to you for the right reasons, being asked the question who else is investing your round, I think is a totally fair question."

This quote emphasizes the importance of transparency about investment round participants, suggesting that it helps build trust and facilitates the development of investor relationships.

• Exceptional investors are characterized by their focused attention, active listening, and note-taking during meetings.
• They make founders feel valued and are the center of attention, even in brief interactions.
• Learning from these investors can influence one's own investing style and founder engagement.

"And so those meetings aren't always long. They're normally actually pretty short. But for that 1020, 30 minutes, you're the focus, their attention, and they want to get to know you."

This quote describes the behavior of successful investors, highlighting the importance of giving undivided attention to founders and actively engaging with them during meetings.

• Contrarian investing involves having a unique perspective and becoming an expert in a specific area.
• It requires a deep dive into a subject to develop a thesis that few others have.
• Being contrarian is often glorified, but it fundamentally means being more informed than others on a particular topic.

"And really what it means to me is you just wanted to become an expert, and you're so obsessed with some topic that you decided to learn more about it than everyone else."

This quote defines contrarian investing as the pursuit of expertise in a niche area, which leads to having a differentiated viewpoint from the majority.

• Venture fund lifecycles and sizes can influence the ability to make contrarian bets.
• Larger funds can place more contrarian bets with less accountability.
• Angel investors face higher risks when making contrarian investments due to personal stakes.

"So if I placed a bet in 2009 that was contrarian, if it worked out, great, if not, people probably forgot about that."

This quote reflects on how fund structures can allow for contrarian investing with varying degrees of risk and accountability, depending on the size of the fund and the nature of the investment.

• Angel investing involves personal financial risk without management fees.
• Confidence is essential for contrarian angel investors due to the personal stakes.
• Being contrarian as an angel investor requires a different perspective than traditional investing.

your own money, and if you make a bad bet, that's money you'll never see again. And most of us aren't making management fees, and we're kind of getting by the returns that we make for ourselves. So it's a much different outlook on being contrarian. I feel like you have to have a lot more confidence as an angel to be a contrarian.

The quote highlights the high stakes and personal risk involved in angel investing and the need for confidence when adopting a contrarian investment strategy.

• Aligning with Peter Fenton's view on not getting hung up on price.
• Importance of focusing on building a valuable product first.
• Belief that customers are often willing to pay more than anticipated.
• Price sensitivity is less of a concern for angel investors who want to support entrepreneurs they believe in.

I would agree with that. I think you need to focus on building an amazing product that has value. Pricing is something you can figure out after you discover or unlock some amazing value for your customers.

The quote emphasizes the importance of product value over initial pricing concerns, suggesting that price can be adjusted once the product's value is established to customers.

• Angels can't afford to be too price-sensitive due to limited opportunities.
• The desire to partner with certain entrepreneurs can outweigh price concerns.
• Angel investors often do not lead funding rounds, so they have less influence on terms.

I think for an angel looking at companies, you can't be too price sensitive because really the opportunities are fewer and harder to find. So when I see a deal or a company that I love, I'm normally not as price sensitive just because I want to get in business with that entrepreneur and I want to go along for the ride.

This quote explains that angel investors prioritize the potential of the entrepreneur and the company over the investment cost, due to the scarcity of good opportunities.

• Jeff Morris Jr.'s favorite books are "Catcher in the Rye" and "Googled" by Ken Aletta.
• Building Tinder Gold is a career highlight due to its impact on Tinder's reputation and success.
• The influence of Bill Campbell as a coach and industry leader is significant to Jeff.

Yeah, for me, it was really building Tinder gold. So that's our most premium subscription tier, and it was amazing team effort.

Jeff mentions building Tinder Gold as a career highlight, showcasing the importance of teamwork and product development in achieving business success.

• Silicon Valley is not the only place to build successful companies.
• Encouragement for entrepreneurs to build companies outside of Silicon Valley.
• Diversity of thought is needed, and it can come from various locations.

I think the advice that you need to be in Silicon Valley to build a company is a complete lie.

The quote challenges the notion that Silicon Valley is the only viable location for startup success, advocating for a broader geographic perspective.

• Market size and target consumer numbers are crucial for forecasting.
• Assumptions about customer purchase behavior are necessary but challenging.
• Market comparisons (comps) can provide valuable insights.
• Understanding lifetime value (LTV) and customer acquisition cost (CAC) is essential for financial forecasting.

Yeah, I think it really comes down to knowing the number of consumers in your target market.

This quote underscores the importance of market research and consumer analysis in predicting a product's financial success.

• Knowing your audience is key when pitching to investors.
• Targeting the right investors is crucial, as is avoiding a generic approach.
• Understanding investor focus areas can increase the chances of successful pitches.

I think it's about knowing your audience. So if you're pitching a blockchain startup, you probably shouldn't be cold emailing an investor who focuses on green tech.

The importance of tailoring pitches to the interests and expertise of potential investors is highlighted in this quote.

• Radar Relay is a recent investment due to its impressive beta performance and global user base.
• The CEO's product-focused approach and alignment with Jeff's values influenced the investment decision.

Yeah, so radar relay was the one I announced recently. It's a decentralized exchange.

Jeff explains his decision to invest in Radar Relay, emphasizing the company's performance and leadership as key factors.

• Jeff would seek advice from his grandfather, Mervyn Morris, due to his entrepreneurial success and straightforward guidance.
• Practical and honest advice from trusted individuals is valued.

I would call my grandfather. So my grandpa is a guy named Mervyn Morris.

The quote indicates the importance of seeking advice from experienced and trustworthy family members in entrepreneurial endeavors.