20VC Spark's Nabeel Hyatt on Investing in Oculus and Cruise & What It Takes To Invest Ahead Of The Curve

In this episode of the 20 minutes VC, host Harry Stebbings interviews Nabil Hyatt, a venture partner at Spark Capital. Nabil shares his unconventional path into venture capital, from founding startups to becoming a VC almost by chance. He emphasizes the satisfaction derived from aiding founders and CEOs in their growth and leadership development. Nabil and Harry discuss the importance of product-driven investment strategies and the challenges of modeling market size, highlighting Spark Capital's success with innovative companies like Oculus and Cruz. Nabil advises startups to maintain agility and to be wary of raising excessive capital too early. He also touches on the significance of the self-driving car industry, sparked by Cruz's acquisition, and the need for startups to have counterintuitive beliefs to succeed. Lastly, Nabil discusses his latest investment in Fig, a company revolutionizing the game development industry, and the value of mentorship in his career.

• Harry Stebbings introduces Nabil Hyatt, a venture partner at Spark Capital.
• Nabil Hyatt has a background in entrepreneurship and has been involved in multiple startups.
• He is on the board of several companies Spark has invested in, including Cruise, Fig Harmonics, Postmates, Proletariat, and Thalmic Labs.
• Nabil sold his company Conduit Labs to Zynga and was with Zynga until their IPO.
• He has experience as a co-founder, head of product, and CEO in both hardware and software companies.

"And joining us today from Spark, I'm delighted to welcome Nabil Hyatt, venture partner at Spark Capital, where he invests in entrepreneurs at the intersection of design and technology to transform markets."

This quote introduces Nabil Hyatt and highlights his investment focus on the intersection of design and technology.

• Nabil Hyatt shares that he had no initial desire to be a VC and that his entry into VC was happenstance.
• He was involved in startups since high school and joined venture capital after his experiences with Zynga and its IPO.
• Bijan Sabet from Spark Capital, a long-time acquaintance, approached him to consider a VC role, highlighting Nabil's potential fit and enjoyment for the job.

"Although I'm not sure I have such a linear story. I had basically no desire to be a VC before becoming a VC, so it was really happenstance."

Nabil explains his unconventional path to becoming a venture capitalist, emphasizing that it was not a premeditated career choice.

• Bijan Sabet suggested that Nabil's satisfaction from helping others grow into leadership roles would make him a good VC.
• Nabil finds immense satisfaction in helping founders and CEOs bring their ideas into the world and develop as leaders.

"The big thing I think he touched on, which has played out very well, is he basically said, look, when you look at your startups and the satisfaction you get from your startups, it's certainly to bring ideas into the world. But the thing that I feel from you is that you actually get just as much satisfaction from helping the people in your company become leaders."

This quote highlights the personal qualities and motivations that Bijan Sabet believed would make Nabil Hyatt successful and fulfilled in a venture capital role.

• Nabil emphasizes that CEOs receive a lot of advice, and most of it is not helpful because it does not consider the unique situation of each startup.
• He avoids giving generic advice and instead tries to understand each situation individually.
• Nabil's experience as an operator helps him empathize with CEOs and provide more tailored support.

"The conversation I have a lot with CEO is that I don't think if you have not been an operator and you go into the VC life, I think the thing that you don't understand or can't really internalize is as a CEO, how many people give you advice."

Nabil outlines the disconnect that can occur when VCs give advice without the perspective of having been an operator themselves.

• Nabil believes that venture capitalists cannot predetermine their investment strategy without encountering actual investment opportunities.
• He suggests that adapting to each unique investment situation is crucial.

"I don't think there's any way a venture capitalist can know what they're going to invest in until they meet the battlefield."

This quote encapsulates Nabil's view that investment strategies in venture capital must be flexible and responsive to the actual opportunities that arise.## Investment Strategies and Market Approach

• Nabil Hyatt discusses how initial expectations about his investment focus did not align with reality.
• He emphasizes investing in startups that aim to create new markets or significantly better user experiences.
• Hyatt describes his investment choices as risky but potentially highly rewarding, such as in self-driving cars or last-mile logistics.
• He critiques the tendency of VCs to repeat successful formulas rather than seeking disruptive innovation.
• Flexibility and the pursuit of new markets or industries are highlighted as essential for innovation.

"And so my startup investments tend to be in things that are relatively risky, large bets like self-driving cars or building a last mile logistics company, which like 100 other people had failed at, and postmates has figured out these things that feel on their face, counterintuitive, not easy to grasp, especially at the stage that you're investing in, often with very large competitors that are coming right at you and then not doing the same thing again and again."

This quote explains Hyatt's approach to investing in startups that are making bold moves in challenging sectors, acknowledging the high risk and the unconventional nature of such investments.

• Hyatt argues that true innovation rarely happens in the same market repeatedly.
• He stresses the importance of being open to new industries and markets that have not been previously considered.
• The discussion includes references to Spark's investment in Oculus as an example of being open to disruptive technologies.
• The advent of the iPhone and resulting market opportunities, such as Uber, are cited as examples of technology enabling new markets.
• Hyatt mentions computer vision as a current technology spurring new possibilities.

"So it's not about kind of a top-down analysis saying, you know, now's the time for home ownership to get disrupted. It's more bottoms up. What's the technology that is creating a new opportunity?"

The quote emphasizes a bottom-up approach to identifying investment opportunities, focusing on technological advances rather than market trends.

• Hyatt reflects on the Oculus investment, emphasizing the importance of keeping an open and beginner's mind.
• He shares a personal anecdote about his initial skepticism towards virtual reality and the transformative experience of the Oculus demo.
• The story illustrates the importance of overcoming initial biases and the role of team members in championing potential investments.
• The competitive nature of the Oculus deal is discussed, along with the tendency of VCs to prefer market-first investments.

"My first reaction was, like, cynical, right? It was, virtual reality is, no one's made that work. It was really not the reaction I would ever want to speak publicly about, quite frankly. But I'm just telling you the story right now, and to Santo's credit, and he has been a good mentor, and there's a reason this firm does what it does. Santo soldiered through and made sure that we all saw the demo."

This quote reveals Hyatt's initial skepticism about virtual reality and the impact of his partner's persistence on changing his perspective, leading to a successful investment in Oculus.

• Hyatt discusses the VC industry's focus on market-first investments and the desire for easily quantifiable markets.
• He contrasts this with his firm's product-driven approach, which prioritizes the product over market size.
• The conversation touches on the tendency of some VCs to pass on investments due to preconceived notions about market potential.

"And the second one is, I think VCs generally, despite whatever they say on their websites, are market first investors. So they want a market that they can model, that they can give to an associate, and an associate can say, this is a $1 billion market or a $1 trillion market."

The quote criticizes the common VC practice of prioritizing market size over product quality and innovation, suggesting that this approach may lead to missed opportunities.## Market Size and Competitive Deals

• Firms often struggle to model the exact market size for certain companies, affecting their competitiveness in deal-making.
• A belief in the founder's creativity and product experience can lead to the creation of new markets that cannot be pre-modeled.
• Being aggressive in investing despite market size concerns can be a successful strategy.

"the day that we invested, were very hard to actually model the exact market size of that company. And so there are a lot of firms that kind of had a harder time competing for them."

This quote emphasizes the difficulty in estimating the market size for certain companies during investment, which can lead to less competition among firms.

• Palmer Luckey's self-awareness in not taking the CEO role is highlighted as an example of good founder judgment.
• The CEO role is considered a job like any other, requiring specific disciplines, and not necessarily the best fit for everyone, including founders.
• The importance of understanding one's strengths and hiring accordingly for the benefit of the company is discussed.

"Yeah, that is just an amazing piece of self awareness by Palmer Lucky as a founder to say he didn't want that job..."

This quote discusses Palmer Luckey's decision not to be CEO of Oculus, illustrating the importance of self-awareness and role suitability in a startup's leadership.

• The right team size is crucial for a startup's success, balancing nimbleness with the ability to execute a vision.
• Concerns are raised about startups that grow too large too quickly, potentially losing agility.
• Oculus is used as an example of a company that was "right-sized" for success.

"Oculus, I think, had the benefit of being, I would call it like right sized, which is they obviously felt a tremendous amount of constraint."

This quote highlights Oculus's advantage in having a team size that allowed for both agility and the capacity to execute their ambitious goals.

• Initial skepticism about Cruise's business model led to a period of observation and engagement without investment.
• A pivot in Cruise's strategy to fully autonomous driving convinced the firm to invest quickly.
• The importance of aligning with a product vision and team before investing is emphasized.

"When he pivoted and decided to do what he's doing now and pursue fully autonomous driving, he reached out."

This quote explains the turning point that led to the investment in Cruise, emphasizing the significance of the company's strategic pivot to fully autonomous driving.

• The self-driving car market's potential is acknowledged, despite the large sum involved in the acquisition.
• Strategic partnerships with auto manufacturers are deemed necessary for leading the self-driving revolution.
• The acquisition by GM is seen as a strategic partnership step rather than a diversion from Cruise's goals.

"And so we knew we needed a strategic partner. And so in many ways, Kyle viewed this as GM could have been investing a certain amount of money or they could have been acquiring the company..."

This quote reflects on the strategic reasoning behind Cruise's acquisition by GM, indicating it was a deliberate partnership choice to advance their goals in the self-driving car industry.

• The exact impact of Cruise's acquisition on the autonomous car industry remains undisclosed.
• There is anticipation for public announcements regarding Cruise's plans and their implications for the industry.

"Well, it's hard to talk about the material stuff because Cruz hasn't announced exactly what they're doing..."

This quote suggests that while the impact of Cruise's acquisition is significant for the autonomous car industry, specific details are not yet public, creating a sense of anticipation.## Self-Driving Ecosystem

• A billion-dollar exit in the self-driving car industry signifies a transition from phase one to phase two of the ecosystem.
• The success of startups like Cruise has attracted VC interest and inspired entrepreneurs to enter the self-driving space.
• New startups must identify unique, counterintuitive beliefs to differentiate and compete with large companies.
• The current environment is challenging for new self-driving startups due to intense competition for funding and talent.

A billion dollar exit means that all the vcs are now scrambling to try and put some money to work. And a whole bunch of entrepreneurs are now thinking that they can start a self driving startup.

This quote explains the impact of a major financial success in the self-driving industry on the behavior of venture capitalists and entrepreneurs, indicating a surge in interest and investment in this sector.

And so if you're starting a company in self driving today, I think you have to think back to how you operate in a way that isn't straight down the middle because you're likely to get, if you're today trying to start a company that is a consumer self driving car, you're probably going to get crushed.

This quote advises new self-driving startups to adopt unconventional strategies to avoid being overshadowed by established companies in the consumer self-driving car market.

• The future of VR is seen as transformative and expected to move beyond gaming.
• The initial high price points are believed to be beneficial, allowing for a focus on a niche market of enthusiasts before mass adoption.
• A major challenge for VR is developing a content model that enables creatives to profit and build sustainable businesses.

Completely transformative. Not just about gaming, for sure.

This quote expresses the belief that VR will revolutionize multiple industries and not be limited to gaming.

And the challenge for sure is, I think finding a content model where creatives can get involved in the industry in a way where they can make good money, build good businesses, and think about experiences outside, hopefully of just gaming.

This quote identifies the key challenge for the VR industry as creating a content model that is financially viable for creators and encourages them to explore beyond gaming applications.

• The best board member is likened to an external co-founder, providing support and empathy to CEOs on issues not suitable for team discussion.
• An effective board member maintains composure and offers assistance without overreacting to the CEO's challenges.

I think the best board member is like your outside co founder.

This quote suggests that the ideal board member acts as a partner to the CEO, offering external perspective and support.

• Nabil Hyatt's current favorite book is "Snow Crash" due to its prescient vision of society's future.
• Science fiction is influencing his thoughts on the future.

I'm reading a lot of science fiction right now because I'm thinking about the future. So I would probably pick snow crash right now because it talks about where our society may still be headed, quite frankly, and was quite prescient.

This quote reveals Nabil Hyatt's interest in science fiction and its relevance to his contemplation of societal trends and future developments.

• Nabil Hyatt highly respects Fred Wilson's blog for its authenticity and non-commercial approach.
• The blog is valued as a genuine expression of thoughts rather than a marketing tool.

Fred Wilson's blog, he's just taken the time to know it's not a content marketing platform for him. It is a way for him to get his thoughts out into the world in the kind of true sense of a blog, and I respect that.

This quote explains why Nabil Hyatt admires Fred Wilson's blog, highlighting its purpose as a medium for sharing ideas rather than promoting content.

• Bijean, who recruited Nabil Hyatt, is his biggest mentor due to his empathy with founders.
• Mentorship is characterized by understanding and sharing the experiences of a founder.

Bijean is easily my biggest mentor. He became my mentor because he helped recruit me here.

This quote identifies Bijean as Nabil Hyatt's most influential mentor, emphasizing the role Bijean played in his career development.

• Nabil Hyatt's latest investment is in a company called Fig, which aims to revolutionize how games are created.
• The decision to invest was driven by the founder's vision and the potential for the product to disrupt the traditional content creation process.

The last announced investment is a company called Fig. I said yes because of the founder, first and foremost.

This quote highlights the importance of the founder's role in Nabil Hyatt's investment decision, indicating the founder's vision as a key factor.

Fig is trying to reinvent, kind of take the best of crowdfunding, equity funding, kind of the whole thing, data driven approach to creative content and kind of rebuilding the way games get built.

This quote explains Fig's innovative approach to game development, combining crowdfunding, equity funding, and data to transform the industry.