20VC Nuzzel's Jonathan Abrams on Why The Top VCs Do Not Have A PlayBook For Startup Success, Why Most Boards Are Not Successful & Why He Is Bored Of Hearing I Fell Into VC

In this episode of the 20 Minutes VC podcast, host Harry Stebbings is joined by Jonathan Abrams, founder and CEO of Nuzzle, a company that provides personalized news and curated newsletters for professionals. Abrams, also known for founding Friendster and being a prolific angel investor with stakes in companies like AngelList and Instacart, discusses the evolution of Nuzzle, the surprising number of VCs who claim to have "fallen into" the venture capital industry, and the misconception that there is a repeatable playbook for startup success. Abrams also touches on the current state of seed funding, the trend of VCs investing outside their expertise in frontier tech, and the importance of content curation in an age of information overload. The conversation also explores the impact of venture capital backing on startups and the effectiveness of boards in guiding companies.

• Jonathan Abrams is the founder and CEO of Nuzzle, a startup offering personalized news and curated newsletters.
• Nuzzle is backed by notable investors such as Mark Andreessen, Naval Ravikand, Home Brew, Softtech, and Lowercase.
• Abrams was also the founder of Friendster and has invested in companies like AngelList, Docker, Front, Instacart, and SlideShare.
• Abrams' appearance on the show is facilitated by Matt Mazio, who introduced him to the host, Harry.

"Therefore, I'm thrilled to be joined in the hot seat today by Jonathan Abrams, founder and CEO at Nuzzle, the startup that offers personalized news, discovery and curated newsletters for busy professionals."

This quote introduces Jonathan Abrams and his current venture, Nuzzle, highlighting its services and the high-profile backing it has received.

• Pendo provides a platform for product teams to understand usage, make data-driven decisions, and improve user experience without engineering resources.
• Treehouse is an online school for learning web and app development with a comprehensive course library and interactive learning tools.

"With Pendo, you can understand product usage and rapidly make data-driven decisions." "Learn on your own schedule and go from beginner to pro."

These quotes describe the services offered by Pendo and Treehouse, emphasizing their roles in facilitating product management and coding education.

• Abrams expresses pleasure in returning to the show and looks forward to a potential in-person meeting for mojitos with Harry.
• Harry and Abrams discuss the legality of drinking in the US now that Harry is 21.

"Great to be back. Happy to do it. And hopefully the next time we talk, it'll be in person so we can get those mojitos that we've been talking about."

Abrams acknowledges his return to the show and the ongoing personal rapport with Harry, including a shared interest in meeting for drinks.

• Abrams founded Nuzzle to solve a personal problem of content overload on social media.
• Nuzzle was designed to manage the chaos and highlight important content that users need to pay attention to.

"I was just like a lot of people, having trouble keeping up. I was overwhelmed and overloaded with content and with social sharing, and I really didn't have time to keep up and click on every single link that my friends were sharing on Facebook and Twitter."

This quote explains the motivation behind creating Nuzzle, addressing the issue of content saturation on social media platforms.

• Abrams is surprised by the number of venture capitalists who claim to have "fallen into" VC.
• He sees a contradiction between claims of difficulty in diversifying VC firms and the casual way some people seem to enter the field.
• Abrams believes that positioning oneself as having "fallen into" VC may not resonate well with entrepreneurs and could sound privileged.

"I am surprised about it and especially surprised that they're actually saying that."

Abrams expresses his surprise at how venture capitalists talk about their entry into the industry, which seems at odds with the effort and risk associated with entrepreneurship.

• Abrams acknowledges that while one does not need to have planned a VC career since childhood, it is better to portray one's path as intentional rather than accidental.
• He suggests that expressing gratitude for opportunities and a passion for working with entrepreneurs is more appealing than claiming to have "fallen into" VC.

"Even if early in your career you weren't planning to become a venture capital investor, I think there are ways that it could be portrayed, the path that probably are going to sound more appealing to entrepreneurs listening."

This quote suggests that venture capitalists should frame their career paths in a way that demonstrates intention and alignment with entrepreneurial values.

• Abrams, as an entrepreneur, values investors with entrepreneurial backgrounds for their empathy and understanding.
• He is surprised that there is still debate over whether operators or founders make better investors given the success of firms like First Round Capital, Y Combinator, and Andreessen Horowitz.

"I actually think that empathy is a good thing and an advantage. And I think you usually want the people you're working with to have empathy."

Abrams argues that empathy, which is more likely to be found in investors with entrepreneurial experience, is beneficial in the investor-entrepreneur relationship.

• The conversation addresses a common misconception that only founders can be good venture capitalists (VCs) or that operational experience guarantees investment success.
• There is recognition that many successful VCs have not been founders and that not all entrepreneurs or operators make successful transitions into investing.
• The performance of most venture capital funds is considered mediocre, with most funds achieving a total value to paid-in capital (TVPI) between one and two.
• A founder and CEO perspective is seen as advantageous due to unique insights gained from that experience.

"I don't think anybody's saying that only founders would make good investors. I don't think anybody's saying that. There's lots of fantastic venture capital investors who have not been founders."

This quote clarifies that the speaker, Jonathan Abrams, does not believe that being a founder is a prerequisite for being a successful VC, despite the common debate in the industry.

"But I would say that if you have been a founder and CEO of a venture-backed company, then you're going to have a certain perspective that others are not."

Jonathan Abrams suggests that the experience of being a founder and CEO provides a unique perspective that can be beneficial in venture capital, but it is not the only path to success.

• Peter Fenton's advice on not turning down companies based on valuation is discussed, highlighting the debate on valuation sensitivity among investors.
• Jonathan Abrams agrees with Fenton's view and suggests that many opinions on price sensitivity lack data-driven evidence.
• Abrams shares personal experiences where higher-priced angel investments have been worthwhile, and lower-priced deals were less appealing.
• The importance of investing in the right companies, regardless of valuation, is emphasized, with a call for more data to support or refute the importance of valuation sensitivity.

"Never turn down a company based on valuation because it's a mental trap."

This quote from Peter Fenton, shared by Harry, suggests that focusing too much on valuation can prevent investors from participating in potentially successful ventures.

"I'd love to see people proving whether this is right or wrong."

Jonathan Abrams expresses a desire for more data-driven analysis to determine the validity of valuation sensitivity in investment success.

• Jonathan Abrams observes that seed funding is decreasing, contrary to the perception of an overfunded market.
• He notes that the crisis of overvaluation is more significant at later stages, specifically among unicorns, rather than at the seed or micro VC level.
• The increase in new micro VC entrants is seen as positive, with the expectation that some will become permanent institutions while others may fade away.
• The amount of capital in seed and micro VC is small compared to larger VC firms, which may face more significant challenges in achieving high returns.

"Well, first of all, I think seed funding is actually going down, not up."

Jonathan Abrams contradicts the common belief that seed funding is on the rise, citing data that suggests otherwise.

"There's some that are going to be real permanent institutions, and there's some where it's a couple of people who already made a bunch of easy money, and I don't know how serious they're going to be about it."

Abrams predicts a natural selection process among micro VC funds, with some establishing themselves as lasting entities and others potentially disappearing.

• The term "conviction" is frequently used by VCs to describe their investment approach, but Jonathan Abrams expresses fatigue with its overuse.
• Abrams challenges the notion that investing without conviction equates to a "spray and pray" strategy, highlighting research that supports diversified portfolios.
• The conversation suggests that the term "conviction" may be overemphasized in the VC industry, and that successful investment strategies can vary.

"Well, I'm tired of hearing the word conviction."

Jonathan Abrams expresses annoyance with the overuse of the term "conviction" in the venture capital industry, implying that it has become a buzzword.

"Spray and prey is also like a pejorative."

Abrams critiques the negative connotation of the "spray and pray" investment approach, alluding to evidence that suggests a diversified portfolio can yield positive returns.

• Many venture capitalists (VCs) review hundreds to thousands of opportunities but invest in only a few each year.
• The term "conviction" has become overused and cliché in the venture capital community.
• There is speculation that the frequent use of "conviction" could indicate insecurity or a perceived need to differentiate oneself in the industry.

"But I think most investors hopefully are investing with conviction. Otherwise, I don't know what you're doing, because many VCs look at 200 to 1000 opportunities a year and invest in one to ten a year."

This quote emphasizes the expectation that VCs should invest with strong belief in their choices, given the large number of opportunities they evaluate compared to the few they select.

"I just find it strange that people are using the word so much because it's one of those things. When people are using the word, it almost makes me think that it. Why do they feel the need to say that?"

The speaker finds the frequent mention of "conviction" peculiar and suggests it may reflect an underlying issue within the VC community.

• There is a common belief that top VCs possess a repeatable playbook or process for startup success.
• The speaker believes that each startup's success is unique and that it is difficult to replicate success across different companies.
• Attempting to apply the same success strategies from one company to another can lead to failure.
• The speaker reflects on past experiences where this approach did not lead to success.

"But when startups become outliers and have huge success, it's often in a very unique way."

This quote highlights that the path to significant success for startups is often distinct and not easily replicated.

"I think trying to take what worked for one successful company and then apply it to a later startup is in fact one of those patterns of failure that can be imposed."

The speaker warns against the assumption that strategies from successful ventures can be directly transferred to new startups, as this can lead to failure.

• The backing of a well-known VC firm can provide social validity and recognition, especially for enterprise companies.
• However, the speaker suggests that the benefit of being associated with a top VC firm is less significant than often presumed.
• With many top VCs in the market, competitors of a startup are also likely to have reputable investors.
• Ultimately, the speaker believes that the management, execution, and product quality of a company are more crucial to its success than its investor branding.

"My experience has been that ultimately, if a company is well managed and executing well, and the technology works and the product works, and they're doing the right things and all that kind of stuff, I mean, that's what really matters."

The speaker asserts that a company's internal management and product effectiveness are more important than the prestige of its VC backers.

• The speaker expresses skepticism about the effectiveness of many company boards.
• Issues such as lawsuits and frequent CEO changes are cited as indicators of board failures.
• The speaker criticizes the practice of having board members serve on multiple boards simultaneously.
• A preference for operational expertise over celebrity or investor presence on boards is suggested.
• The complexity of board management is acknowledged, especially for entrepreneurs who may lack experience compared to investors.

"I think most boards are just not very successful. And you look at some of the things that you read in the press about very famous companies sometimes, and some of these companies have some of the most famous venture capitalists behind them, and then you see lawsuits, you see them going through multiple CEOs in quick succession."

This quote illustrates the speaker's view that many boards, despite having prominent VCs, fail to achieve success and face significant governance issues.

• The speaker references Elad Gil's opinion on VCs investing in frontier technology they may not fully understand.
• There is concern that this trend could lead to problems similar to those experienced in the green and nanotech sectors in the early 2000s.
• The speaker disagrees with the notion that opportunities in the Internet and software are exhausted.
• The importance of understanding the domain before investing in frontier technologies is emphasized.

"So the idea that it's all over and you need to sort of jump into some biotech or some other frontier science thing, I don't think that's actually true."

The speaker challenges the idea that VCs should shift focus away from software and Internet to new, less familiar sectors, highlighting the ongoing potential in existing domains.

"I think if you're going to jump into those areas, you really need to know what you're doing."

This quote underscores the need for VCs to have a deep understanding of the sectors they invest in, particularly when it comes to frontier technologies.

• Venture capital firms may struggle if they diverge too far from their areas of expertise.
• Diversification into various sectors like autonomous vehicles, drones, VR, biotech, and genomics could present challenges.
• Specialization in venture capital is a balance between sticking to known areas and being opportunistic with new ventures.

"But I think if every enterprise software VC all of a sudden tries to start doing autonomous vehicles and drones and VR and biotech and genomics and whatever, I'm not sure if that's really going to go well for everybody."

The quote suggests that venture capitalists should be cautious about stepping too far outside of their expertise, as it may not yield positive results for everyone.

• Harry expresses admiration for Matt and the work being done at Data Collective.
• Data Collective is involved in investing in various innovative fields.

"And I do have to give a special shout out here to Matt because he's one of my true favorites. But yeah, love all they're doing at data collective."

Harry is giving credit to Matt and Data Collective for their successful work in the venture capital space.

• Jonathan Abrams recommends the science fiction book "Beggars in Spain" by Nancy Kress for its relevance to income disparity.
• Abrams also recommends the "Strictly VC" newsletter by Connie Lozios for daily reading.

"I'm going to say beggars in Spain by Nancy Cress."

Jonathan Abrams suggests "Beggars in Spain" as his favorite book, highlighting its thematic relevance to current societal issues.

"I'm going to give a shout out to strictly VC by Connie Lozois. That's definitely one of my must reads each day."

Abrams recommends "Strictly VC" as a valuable resource for staying informed about the venture capital industry.

• Jonathan Abrams expresses skepticism about the hype surrounding AI in startup pitches and venture capital.
• He believes that while AI is significant, the current level of emphasis on it may be excessive.

"I think one of the things I think is overhyped now is AI, or maybe talking about AI."

Abrams is wary of the intense focus on AI in the industry, suggesting it may be overhyped.

• Jonathan Abrams discusses the pros and cons of thematic specialization within venture capital.
• Specialization can lead to differentiation, but may also restrict investment opportunities.
• A balance between specialization and opportunistic investment is deemed necessary.

"Is thematic specialization the future of VC, and why?"

Abrams is asked to consider whether thematic specialization is the future of venture capital, indicating the ongoing debate in the industry.

"Personally, I think sometimes these things are more for pitching it to LPs than they are for reality."

Abrams suggests that thematic specialization is often used as a strategy to attract limited partners (LPs), rather than reflecting actual investment practices.

• Nuzzle aims to connect people with essential content, differentiating from other news apps and social networks.
• Innovations include an email newsletter platform and a Facebook Messenger bot.
• Nuzzle seeks to solve the problem of content overload and provide a consolidated source of relevant information.

"Nuzzle, our vision has been all about connecting people with the content they really need to know about."

Jonathan Abrams describes Nuzzle's vision of improving how people discover and access important content.

• Pendo is highlighted as a platform for product teams to understand usage and gather user feedback.
• Treehouse is recommended for learning coding and web/app development.

"With Pendo, you can understand product usage and rapidly make data-driven decisions."

The quote emphasizes Pendo's role in helping product teams make informed decisions based on user data and feedback.

"I went to Treehouse, the online school where you can learn how to build websites and apps."

Harry mentions Treehouse as a valuable resource for learning coding and development skills.