20VC Spark's Bijan Sabet on Investing in Twitter, Tumblr and Foursquare & Why First Time Founders Are So Exciting

In this episode of "20 minutes VC," host Harry Stebbings interviews Bijan Sabet, a general partner at Spark Capital, renowned for his early investments in Twitter, Tumblr, and Foursquare. Sabet shares his unconventional journey into venture capital, starting as an entrepreneur in residence at Charles River Ventures before co-founding Spark Capital, emphasizing consumer-focused startups. He discusses the challenges of building a VC firm from scratch and the importance of supporting first-time founders, highlighting their audacity and potential for innovation. Sabet also touches on the evolving landscape of consumer hardware investments, as exemplified by Spark's involvement with Oculus and Lily Robotics. He debates Fred Wilson's viewpoint on the downturn in consumer startups, arguing that new breakthroughs are imminent, and stresses the significance of growth and assembling strong management teams for startup success.

• Spark Capital is highlighted as one of the best-performing funds of the past decade.
• Bijan Sabet is introduced as a general partner at Spark Capital with a focus on digital canvases and online communities.
• Bijan's early investments include Twitter, Tumblr, Foursquare, Runkeeper, and OMGPop.
• Prior to venture capital, Bijan was a product manager at startups that were all acquired, one by Microsoft.

"And today's guest is equally as special as before I even started the show, I was desperate to meet this man. Therefore, I'm so delighted to introduce Bijan Sabet, general partner at Spark Capital, where he primarily invests in digital canvases and online communities."

This quote introduces Bijan Sabet, emphasizing his importance and the host's anticipation to meet him. It also outlines Bijan's investment focus areas within Spark Capital.

• Bijan had no initial plans to become a venture capitalist.
• His move to the East Coast from Silicon Valley led to joining Charles River Ventures as an Entrepreneur in Residence (EIR).
• Bijan became close with Santo, a partner at Charles River Ventures, leading to the founding of Spark Capital.
• Spark Capital was started with a focus on consumer-related investments, which was uncommon in 2004-2005.

"I actually had no plans on becoming a venture capitalist. I was in Silicon Valley for about ten years and worked in a few big companies and startups, and some were great, some were less than great."

This quote explains Bijan's background and his unplanned entry into the venture capital industry, which was a result of his move and the opportunities that arose from it.

• Spark Capital raised their first fund of $260 million.
• The challenge was establishing credibility and convincing entrepreneurs to work with them amidst established venture firms.
• Spark Capital's dedication to consumer startups and willingness to work with founders at an earlier stage than other firms helped differentiate them.
• Investing in first-time entrepreneurs post-dot-com bubble was not obvious at the time.

"Why should entrepreneurs in a world where there's just amazing venture firms out there, iconic names and successful firms, why work with us?"

This quote reflects the challenge Spark Capital faced in distinguishing itself from established venture capital firms and gaining the trust of entrepreneurs.

• Bijan does not see first-time founders as a discouragement but rather finds them exciting.
• He believes first-time founders possess audacity and a lack of fear that can be essential for success.
• Bijan values the founder's vision, instincts, and what they are building over their background or previous affiliations.

"I think first time founders have a level of audacity that sometimes more experienced people don't have because there's no fear."

This quote captures Bijan's perspective on the unique value that first-time founders bring to the table, which is their audacity and lack of fear in pursuing their dreams.## Decision to Invest in Twitter

• Bijan Sabet became hooked on Twitter as an early user before investing.
• He was impressed by the combination of simplicity, fun, and utility the platform offered.
• The co-founders, Biz Stone, Jack Dorsey, and Evan Williams, were a special team that inspired his investment.

"I really became hooked as an early user before I became an investor. And then when I met the three founders, it was an extraordinary special team, Biz Jack and Evan Williams." "And my enthusiasm for Twitter was I had never seen anything that had this combination of simple fun with know."

The quote highlights Bijan Sabet's initial user experience with Twitter and his meeting with the co-founders which led to his decision to invest. It shows the unique value he saw in Twitter's product and team.

• Bijan Sabet always believed Twitter could be a special, independent company.
• He did not focus on the future market cap but on the belief in the founders and the community.
• The platform had less than 250,000 daily active users and faced technical challenges early on.

"But I always had this feeling that it could be a really special, independent company. Whether it would become worth, I don't know what the market cap is today. 1012, $13 billion, whatever it is. That wasn't part of my analysis in those days, but I always really believed."

This quote reflects Bijan Sabet's confidence in Twitter's potential despite early challenges. It shows that his investment decision was based on the strength of the product and team rather than financial projections.

• The real-time reporting of the US Airways plane landing in the Hudson River on Twitter was a pivotal moment.
• The incident demonstrated Twitter's unique distribution power and reach beyond traditional media.

"The very first images from that plane landing in the river in New York City. It wasn't from mass media, it wasn't traditional media. The photos broke on Twitter."

The quote describes a significant event that underscored Twitter's impact on media and information dissemination, highlighting its unique capabilities as a social platform.

• First-time founders often struggle with the transition from focusing on product development to managing a growing team.
• Bijan Sabet uses David Karp of Tumblr as an example of a founder who initially focused solely on product.
• Scaling a company introduces new challenges such as staffing, recruiting, delegating, and managing.

"It's a different challenge when you have two employees versus ten employees, versus 20 employees versus 50 employees, which is kind of how Tumblr scaled from a headcount standpoint."

This quote illustrates the growing pains first-time founders experience as their company expands, shifting their responsibilities from product-centric to management-oriented tasks.

• Bijan Sabet believes hiring the right people is crucial for maintaining focus on vision and product.
• A COO might be a good idea depending on the situation, but the overarching point is to surround oneself with great people.
• The best companies and CEOs hire the best executives to help scale the business.

"But the uber point here about finding great people to surround yourself with is the key thing."

The quote emphasizes the importance of building a strong team to support a founder's vision and the operational aspects of the company, which can be critical for growth and maintaining focus on the product.## Importance of Management Teams for CEOs

• The ability of a CEO can significantly improve with the recruitment of a highly skilled management team.
• Bijan Sabet observes that CEOs like David Karp enhanced their leadership skills and impact by bringing in competent executives.

"David Karp's CEO chops went from good to great when he brought in Derek Godfrey to run engineering."

This quote emphasizes the positive transformation in David Karp's effectiveness as a CEO after hiring a strong executive to manage engineering, suggesting that the right team can elevate a leader's performance.

• Bijan Sabet argues that first-time founders are not expected to be market-ready from the beginning.
• Personal growth, curiosity, and the willingness to learn are crucial for founders.
• The role of early-stage investors includes aiding founders in hiring the best people and supporting their growth.

"I don't think anyone's market ready from the get go."

Bijan Sabet challenges the assumption that founders should be fully prepared to tackle the market from the start, indicating that growth and development are ongoing processes.

• Early-stage investors should focus on helping founders become the most successful versions of themselves.
• This involves not just capital investment but also strategic guidance and support in hiring and personal development.

"I think our job as early stage investors is to help founders be the most successful founders they can be, and that's by helping them hire the very best people."

Bijan Sabet describes the multifaceted role of early-stage investors, which extends beyond funding to include mentorship and team-building assistance.

• Bijan Sabet notes an increase in consumer hardware investments and the emergence of nontraditional financing and marketing methods.
• Companies like Oculus have demonstrated successful alternative approaches to building a brand and community.

"Oculus... financed the company differently than traditional hardware companies. They raised their initial capital on Kickstarter."

This quote highlights Oculus's unique approach to funding and community building, setting a precedent for other consumer hardware startups.

• Bijan Sabet acknowledges some concerns about consumer brand development but remains optimistic about the potential for new breakthroughs.
• The cycle of innovation includes periods of imitation followed by the emergence of original, successful platforms.
• Sabet believes in the potential of new entrepreneurs to challenge established giants in the industry.

"I think just these things take time and the next generation entrepreneur thinks about things radically different."

Bijan Sabet suggests that innovation cycles and fresh perspectives from new entrepreneurs are natural and will lead to the next wave of successful consumer brands.

• Bijan Sabet's approach to growth versus revenue depends on the specific product, company, and whether it's hardware or software.
• Growth is important, but the strategy must be tailored to the unique characteristics of each venture.

"I think it really depends on the type of product and type of company and whether it's hardware versus software, capital efficient versus full stack."

The quote captures Bijan Sabet's nuanced view on the growth versus revenue debate, emphasizing the need for a customized approach based on the nature of the business.## Growth and Investment Criteria

• Bijan Sabet discusses the importance of growth for companies, particularly those looking to attract public markets, employees, and investors.
• He differentiates between companies suitable for venture capital and those that should avoid it, based on the amount of deficit financing required.
• Healthy growth is emphasized over spending excessively for revenue, using examples of successful companies like Slack, Snapchat, Trello, and Warby Parker.

"talk about a company that had no growth generating some profits, but year after year was not growing, nobody would really be."

This quote underscores the general disinterest in companies that lack growth, regardless of profitability, from the perspective of public markets, potential employees, and investors.

"what I do for a living is I look for vc type companies that can build something that could go public one day and be independent for the long haul."

Bijan Sabet explains his professional focus on identifying companies with the potential for long-term independence and the ability to go public.

"there's some types of companies where I don't think you should raise venture capital."

Bijan advises against venture capital for companies that require minimal deficit financing, suggesting alternative funding methods may be more appropriate.

"If your company is going to require 510 $15 million before you can achieve the mission or more, then I think it starts to become a more interesting candidate."

Companies needing significant investment to achieve their mission are identified as more suitable for venture capital.

"But there's a reason why Slack is being rewarded. We're investors in Slack."

Bijan uses Slack as an example of a company that has achieved healthy growth and is being rewarded in the market, justifying the investment his firm made in it.

• Bijan Sabet engages in a rapid question-and-answer session, sharing insights on his favorite book, views on virtual reality (VR), and advice for entrepreneurs.
• He expresses admiration for first-time founders like David Karp and emphasizes the importance of passion over market trends when starting a company.
• Bijan's most recent public investment is revealed, along with his investment strategy of making a few select investments each year.

"Ready player one. It's a book that kind of contemplates a future world of VR."

Bijan shares his favorite book, highlighting his interest in virtual reality as a concept and potential future technology.

"I'm super bullish."

Expressing a strong positive outlook on the future of VR technology, Bijan indicates his belief in its potential growth and impact.

"If I have to pick one, I pick VR over AR. But AR is certainly interesting."

Bijan prefers VR over augmented reality (AR), though he still finds AR to be an interesting field.

"don't settle."

Bijan offers concise advice, suggesting that one should strive for the best in personal and professional goals without compromising.

"David Karp probably is certainly up mean, you know, Dennis Crowley, David Karp, Evan Williams."

He praises first-time founders like David Karp, Dennis Crowley, and Evan Williams for their special qualities and contributions to the tech industry.

"I think people should be less interested in what's the hot thing right now and more about what is really inspiring you."

Bijan advises entrepreneurs to focus on their passion and what they want to see in the world rather than chasing current market trends.

"My most recent one is Lily."

Bijan reveals his most recent public investment, emphasizing his selective investment approach at Spark Capital.

• Harry Stebbings thanks Bijan Sabet for his participation and shares ways for listeners to engage with the show.
• A promotional message for Lisa.com is included, highlighting the benefits of their mattress products and a special offer for listeners.

"Real pleasure. Thank you so much."

Bijan expresses his gratitude for being on the show, concluding the conversation.

"What a special show that was with Bijan and so grateful to him for giving up the time today."

Harry Stebbings reflects positively on the interview with Bijan Sabet and thanks him for his time.

"do not forget to check out lisa.com vc when you head there."

Harry Stebbings promotes Lisa.com, offering a discount code for their mattresses and emphasizing a risk-free trial period.