20VC Why Small Markets are Better Than Big Markets, The Biggest Delusion of Early Stage VC, Why AI Investing is like a Horserace and Why The Most Ambitious Companies Growing the Fastest are not the Best Investments with Adam Fisher, Partner @ Bessemer

Summary Notes


In a candid conversation on "20 VC," host Harry Stebbings and seasoned Israeli investor Adam Fisher, a partner at Bessemer Venture Partners, delve into the nuances of venture investing and startup growth. Fisher, known for his impressive track record of over 60 investments and 23 exits, shares insights on the pitfalls of chasing the fastest-growing companies, emphasizing the value of patience and the disproportionate returns often realized in the final stages of a company's journey. He advises fellow investors to aim for base hits rather than home runs, underscoring the importance of recognizing when a company has peaked and the strategic timing of exits. The discussion also touches on the evolving landscape of the Israeli tech ecosystem, the perils of overfunding, and the delicate balance between being an assertive and supportive board member. Fisher's approach to investing is shaped by a blend of risk aversion, experience, and a keen sense of timing, advocating for a measured strategy that prioritizes sustainable growth and long-term vision over short-term hype.

Summary Notes

Investment Strategy

  • Adam Fisher believes that investing in the fastest-growing companies is not the only path to a big exit.
  • He emphasizes that significant value is often created in the last stages of a company's life.
  • Investors must decide between aiming for a single massive success or multiple smaller successes.

"I don't think that the way you build a big company or the way you get a big exit is by investing in the most ambitious companies growing the fastest. Those are also the companies that crash and burn."

The quote explains Adam Fisher's view that rapid growth does not guarantee a successful investment, and that companies with fast growth can also fail dramatically. It challenges the common perception that high-speed growth is always desirable in investments.

Podcasting and Learning in Venture Capital

  • Harry Stebbings started 20 VC to become a better investor and learn from the best.
  • The podcast offers insights from successful investors and is a platform for learning in the venture capital industry.

"This is 20 vc with me, Harry Stebbings and I started 20 VC nine years and 2700 episodes ago because I wanted to be the best investor in venture and I wanted to learn from the best."

Harry Stebbings shares the motivation behind starting his podcast, highlighting his desire to improve as an investor by learning from successful figures in the venture capital space.

Adam Fisher's Entry into Venture Capital

  • Adam Fisher's entry into venture capital was serendipitous, beginning with an internship during his undergraduate years.
  • He learned about venture capital from business plans and hands-on experience in a small fund.
  • The venture capital industry was less accessible and more closed off in the past, lacking the openness and sharing of strategies seen today.

"So it was serendipitous. I was a student at the time... And somebody pulled out... it was for a venture capital fund."

Adam Fisher recounts the unexpected opportunity that led him to venture capital, illustrating how chance encounters can shape a career path.

Investor-Entrepreneur Dynamics

  • Adam Fisher prefers the current investor-entrepreneur dynamics, which are more open and collaborative.
  • He advocates for a partnership approach with entrepreneurs rather than a paternalistic or adversarial one.
  • The speed of investment decisions today is a concern, as it may lead to rushed and potentially poor decisions.

"I worked back then at a time where it was a much more adversarial relationship with entrepreneurs."

This quote highlights the evolution of the relationship between investors and entrepreneurs, from adversarial to more collaborative, and Adam Fisher's preference for the latter.

Speed of Investment Decisions

  • Adam Fisher criticizes the rapid pace of investment decisions, likening it to "speed dating" that leads to a "marriage proposal."
  • He believes that a more extended period of due diligence leads to better investment decisions.
  • The best investments are often those where there is a strong relationship and understanding between the investor and the entrepreneur.

"There's something about the speed that is not fair. It's literally speed dating."

The quote emphasizes the problematic nature of making quick investment decisions without adequate time to understand the company and its founders.

Investing in First-Time vs. Second-Time Entrepreneurs

  • Adam Fisher enjoys investing in first-time entrepreneurs and values the ability to learn and progress quickly.
  • He is cautious with second-time entrepreneurs who may be overconfident from previous success.
  • The key is to identify entrepreneurs who are self-aware and open to learning, regardless of whether they are first-time or second-time founders.

"I actually love first time entrepreneurs. The key for looking at first time entrepreneurs is identifying somebody that you have chemistry with."

Adam Fisher expresses his appreciation for first-time entrepreneurs who are willing to learn and develop a strong working relationship with their investors.

Insider vs. Outsider Entrepreneurs

  • Adam Fisher prefers outsider entrepreneurs who bring innovation and openness to a market.
  • Self-awareness and charisma are crucial traits for outsider entrepreneurs to succeed.
  • Insiders may be limited by their knowledge of what hasn't worked in the past.

"I like the outsider approach. It's common to Israel because Israelis typically are coming from outside."

The quote reflects Adam Fisher's preference for entrepreneurs who approach markets as outsiders, which is common in the Israeli entrepreneurial ecosystem.

Category Creation vs. Existing Markets

  • Adam Fisher believes that aiming to create a category from the start is a mistake.
  • Category creation often happens in retrospect and involves multiple players, not just one company.
  • Entrepreneurs should focus on identifying new types of customers or buyers rather than trying to create a category from scratch.

"I think from the get go, if you're talking about creating a category, you're making a mistake."

This quote conveys Adam Fisher's view that entrepreneurs should not set out with the primary goal of creating a new category, as this often occurs organically and involves multiple contributors.

Contrarian Investment Approach

  • Adam Fisher is comfortable being contrarian and investing in companies without direct competition.
  • He avoids investments that others dismiss as uninteresting, seeking a balance between contrarian and acceptable to other investors.
  • Being the first mover in a niche market is preferred over being second or third in a larger, competitive market.

"I think there's two types of investors out there. There are those that get comfortable when there's competition... But I'm the other type."

The quote reflects Adam Fisher's contrarian stance, favoring unique investment opportunities over those with substantial competition.## Fundraising and Investor Strategy

  • Ensuring accessibility to the next round of funding is critical for company survival.
  • It is easier to predict who will acquire a company than who will invest in it.
  • Adam Fisher invests in entrepreneurs who can raise money, even if they don't meet their plans.
  • Fundraising ability is crucial and includes being a storyteller, having a history of execution, and connecting with like-minded investors.

"It's a combination of the entrepreneur, the CEO in this case. Will they be able to raise money? I invest in people who I think can raise money even when they don't meet their plan."

The quote highlights the importance Adam places on the entrepreneur's ability to secure funding, emphasizing that this skill is a significant factor in his investment decisions.

Storytelling vs. Execution

  • A great storyteller is not just a performer but can effectively communicate with customers and pitch the solution to their pain points.
  • Execution is necessary to back up the story; a product must be delivered, and customer satisfaction and efficiency must be demonstrated.
  • Adam Fisher is wary of investing in entrepreneurs who raise large sums at early stages without proper execution.

"You can't just raise on a story. You have to have some execution behind it."

Adam explains that while storytelling is important, it must be supported by tangible execution and results to be a valid investment opportunity.

Efficiency in Founders

  • Efficiency is a key attribute Adam looks for in entrepreneurs.
  • Signs of efficiency include personal risk-taking, using one's own money, and hands-on involvement in the company's early stages.
  • Founders who have made the first sales or written initial code demonstrate efficiency.

"If they've already established the company, yes, I'd like to know who made the first sales. I would actually expect the CEO to have made the first sales."

Adam uses this quote to illustrate the importance of founders being directly involved in the initial sales, which is an indicator of their commitment and efficiency.

Entrepreneurial Background

  • Patterns of entrepreneurial behavior in childhood can be indicators of future success.
  • However, Adam Fisher does not discount entrepreneurs who come from more conservative or corporate backgrounds.

"The ones that show an entrepreneurial streak in their background, they generally are entrepreneurs."

Adam acknowledges that an entrepreneurial spirit in one's history can be a strong predictor of future entrepreneurship, but he remains open to those without such a background.

Market Size Considerations

  • Adam prefers investing in smaller markets to avoid competition and still achieve exits with the right pricing and valuation.
  • He looks for niche markets with potential for expansion into adjacent sectors.
  • Market size must be assessed realistically, considering the specific subset the company targets.

"I personally like to invest in smaller markets for two reasons."

Adam explains his preference for smaller markets, highlighting the lack of competition and the potential for successful exits with proper valuation.

Investment Outcomes and Fund Size

  • Adam Fisher focuses on the quality of the investment, not just the potential size of the outcome.
  • He believes that early-stage investing requires acceptance of uncertainty and the potential for both good and bad surprises.
  • His approach differs from later-stage investors who may focus on fund-returning outcomes.

"Some of my smallest investments ended up being my biggest outcomes."

This quote emphasizes Adam's experience that significant returns can come from small initial investments, supporting his strategy of focusing on the quality of the investment rather than its potential size.

Learning from Investment Mistakes

  • Adam reflects on past investment mistakes, particularly when his thesis was wrong.
  • He values learning from these experiences to avoid similar errors in the future.

"The underlying thesis was completely wrong and I really learned my lesson."

Adam shares a personal anecdote of a failed investment to illustrate the importance of learning from mistakes and refining investment strategies accordingly.

Pattern Recognition

  • Pattern recognition helps investors identify potential winners and avoid time spent on bad deals or strategies.
  • Adam Fisher uses his experience to recognize what won't work, which is valuable for advising entrepreneurs.

"The best thing about patent recognition over time is that you recognize what won't work."

Adam explains that through experience, he has learned to identify strategies and behaviors that are likely to fail, which is a valuable skill in guiding entrepreneurs.

Role of Investors and Board Members

  • Investors and board members act as guides, warning entrepreneurs of potential pitfalls without dictating their course.
  • Adam Fisher sees his role as helping entrepreneurs avoid mistakes rather than steering the company's direction.

"We're like the lighthouse. We just tell them where the rocks are so they don't crash."

Adam uses the lighthouse metaphor to describe the advisory role of investors and board members, emphasizing their function in risk avoidance.

Hiring and Talent Assessment

  • Adam Fisher assesses candidates' personalities and temperaments to ensure they match the entrepreneur and the company's stage.
  • He focuses on avoiding disastrous hires rather than finding the absolute best candidate.
  • Mismatches often occur due to the candidate's readiness for the company's stage rather than personal chemistry with the entrepreneur.

"I'm much more interested in not making a mistake with a hire than making sure that this is the best possible candidate we could hire."

Adam expresses his approach to hiring, prioritizing the avoidance of bad hires over the pursuit of the perfect candidate.## Experience in Hiring

  • Experience in hiring is crucial and often underrated.
  • Second-time entrepreneurs possess the skill to identify and hire the right candidates without needing venture capitalists to interview them.
  • These entrepreneurs can move quickly in the hiring process due to their past experience.

"That's one of the greatest skills of second time entrepreneurs, is that they actually don't even need me to interview any of the candidates. Typically they move so fast."

The quote highlights that experienced entrepreneurs have a refined ability to hire effectively and efficiently, often bypassing the need for investor involvement in the hiring process.

The Constant of People Management

  • Despite changes in technology, such as AI and cloud computing, the fundamentals of managing people remain constant.
  • Skills in detecting, hiring, maintaining, and retaining talent are evergreen.
  • Understanding one's own management style is key to successful hiring.

"Honestly, it's such a different world now in terms of infrastructure, in terms of stack, having operator experience. Technically speaking, then I don't think it makes a huge difference to versus now because it's so different. But people always stay the same. And actually the ability to detect talent, hire, maintain talent, retain talent, that's always the same."

This quote emphasizes that while technology may evolve, the core aspects of human resource management and talent acquisition remain consistent across time.

Self-Awareness in Leadership

  • Knowing oneself as a manager or leader is crucial for success.
  • Self-awareness helps in hiring people who match the leader's style.
  • Experience as a CEO enhances self-awareness and the ability to manage different working styles.

"But also knowing yourself as a manager or leader, everybody's different. And the more experience you have having been in that situation, the better you are about hiring the people that are a good match for you."

The quote underlines the importance of self-awareness in leadership and its impact on hiring practices that align with the leader's style.

Founder-VC Relationship

  • The relationship between founders and venture capitalists is akin to a partnership.
  • VCs often support founders through challenges and help balance their perspective during highs and lows.
  • Transparency and composure from the VC lead to a more transparent and forthcoming relationship with the entrepreneur.

"I see my role as a VC as picking up an entrepreneur, when they're like on the ground because of some kind of disappointment or challenge, but also pulling them down when their heads in the clouds, when they get too giddy about some recent success or about the recent valuation or some interest from an acquirer."

This quote discusses the VC's role in providing balanced support to entrepreneurs, helping them through both successes and setbacks.

Price Sensitivity in Investments

  • Price is often a secondary concern for early-stage investments.
  • The real issue is often the amount of money being raised and what founders plan to do with it.
  • High valuations can be problematic, especially if they reach or exceed exit territory.

"Rarely have I turned down deals in the very early stages due to price alone. That price is often a function of raising too much money."

The quote explains that for early-stage investments, the valuation is not the primary deterrent; instead, it's the concern over the excessive amount of capital being raised without a clear plan.

The Pitfalls of High Valuations

  • High valuations can lead to difficult situations, especially if they are in exit territory.
  • Downrounds are not as problematic as being overvalued.
  • Honest communication from CEOs about market fluctuations can help companies recover from downrounds.

"Much more problematic, again, are valuations that are essentially in exit territory or far in excess of exit territory. It's really hard to recover from that."

This quote highlights the dangers of companies being overvalued, which can be more detrimental than experiencing downrounds.

Raising Too Much Capital

  • Raising excessive capital at early stages can distort company operations and culture.
  • The rationale for large early-stage funding rounds is often based on competition rather than necessity.
  • The preference is for smaller, more manageable rounds that align with actual needs.

"I think it distorts everything. I think you create everything from the go to market model, to how you hire, to the offices and the culture you're creating, it's all wrong."

The quote addresses the negative impacts of raising too much capital too early, which can lead to a distorted approach to building a company.

  • Investing in AI before it was a hot market allowed for successful exits.
  • The competition in mainstream AI use cases is intense, making it feel like betting on a horse race.
  • The approach is to focus on less crowded markets and unique opportunities.

"Since AI has become what it is, I've run the other way. The simple reason that I just can't make sense of the competition."

The quote explains the decision to avoid mainstream AI investments due to the high level of competition and the preference for clearer opportunities.

Strategy for Investment Success

  • The strategy involves looking for companies that may not initially fit existing market definitions but show promise through innovation.
  • Success often comes from patience and companies that "figure it out" over time.
  • The aim is to achieve consistent "base hits" rather than betting everything on a few ambitious companies.

"It's been companies that require patience and that over time, figure it out and surprise everybody out of nowhere."

This quote describes the investment philosophy of focusing on companies that may not be immediately recognized as market leaders but have the potential for steady growth and success over time.

Capital Concentration in Venture

  • Most venture returns come from a few deals, but predicting these winners is challenging.
  • Reserves are important for fund management but should not be seen as a commitment to any single company.
  • Adjusting allocations and being willing to abandon certain investments is part of effective fund management.

"There's no question that at the end of the day, most of your returns are going to come from very few deals."

This quote acknowledges the reality that a small number of investments typically generate the majority of returns in venture capital.

Risk Aversion in Investing

  • Personal investment style, such as risk aversion, influences decision-making.
  • Missing additional investment opportunities is less concerning than overcommitting to unsustainable growth.
  • Each investment decision impacts future decisions, and maintaining a consistent approach is key.

"I worry more about losing on those types of investments than having missed an opportunity to make a bit more money."

The quote reflects the cautious approach to investing, valuing the preservation of capital over the potential for higher, but riskier, returns.

Founder-Investor Misalignments

  • Misalignments between founders and investors typically occur at later stages, especially when founders begin selling secondary shares.
  • Growth stage investors are focused on the future, while founders may feel entitled to liquidity based on past efforts.
  • Early stage investments usually have better alignment as both parties are "in the money."

"I think for later stage investors there's misalignment, especially when founders start to sell secondary."

This quote points out the differing priorities and perspectives between founders and later-stage investors, leading to potential conflicts of interest.## Investor Expectations and Founder Responsibilities

  • Investors trust in founders based on their belief in the company and vision.
  • Founders are expected to be patient and work in the interest of all shareholders.
  • There is a need for founders to communicate effectively with investors during challenging times.

"I think if I was, I would tell the entrepreneur to ignore them and to figure out, to tell them why they need to be patient and why you still appreciate them as an investor and understand that it might not be the outcome that they had hoped for."

This quote emphasizes the need for founders to manage investor expectations, especially when the desired outcomes are not immediately achievable.

Liquidity and Market Dynamics

  • The M&A market is not very active, with events like Figma's acquisition impacting expectations.
  • Liquidity for investors often depends on the company's willingness to sell at a lower price.
  • Founders must preemptively accept offers before the market conditions worsen.

"I think there will be. I think it's just a matter of price and matching it."

Adam Fisher indicates that liquidity opportunities exist, but they depend on finding the right price point and matching buyer and seller expectations.

Timing and Exit Strategy

  • Selling is considered when a company is perceived to have reached or is nearing its peak.
  • Adam Fisher believes in his ability to predict company peaks and market trends.
  • The process of selling a company is often lengthy and requires alignment with the CEO.

"If it's peaked, I'm already probably it's too late."

This quote reflects Adam Fisher's strategy of selling before a company's growth peaks, as waiting too long can diminish the exit value.

Acquisitions and Value Creation

  • Acquisitions may be influenced by the charisma and potential of the founder.
  • Acquirers look for more than just technology; team and timing are crucial.
  • There are finite windows where the majority of returns are generated in venture capital.

"They're going to acquire you."

Adam Fisher points out that acquirers are often interested in the founder as much as the company, which can lead to surprisingly good offers even for smaller companies.

Public Stance on Sociopolitical Issues

  • Adam Fisher takes a public stance on issues like Israeli judicial reform and anti-Semitism.
  • He believes in expressing independent thoughts freely and honestly.
  • Fisher feels it is important to speak out, despite potential backlash.

"If you're going to have an independent mind and live in a place that's free, if you don't feel comfortable expressing it, then it's just not worth that much."

This quote highlights the importance Adam Fisher places on the freedom of expression and the value of having an independent mind.

Investment Perspective Shifts

  • Adam Fisher's usual long-term optimism has recently shifted to short-term optimism.
  • He discusses the state of the Israeli market and venture capital.
  • Concerns about geopolitical trends and isolationism are mentioned.

"I'm usually the kind of person who says that I am pessimistic about the short term but optimistic about the long term."

Adam Fisher explains his typical investment outlook and how his perspective has recently inverted.

Misconceptions of Israeli Startup Ecosystem

  • The Israeli startup ecosystem is diverse and not limited to tech or cybersecurity.
  • Entrepreneurs from various backgrounds, including non-technical ones, can be successful.

"It's probably that they're all techies and they're all in cybersecurity, which is just not the case."

Adam Fisher addresses the misconception that Israeli startups are predominantly tech-focused, highlighting the diversity within the ecosystem.

Investment Advice and Experience

  • Advice includes exiting when initial assumptions fail and recognizing value creation towards a company's later stages.
  • New investors are encouraged to achieve early exits to build confidence.
  • Adam Fisher shares his experience with investing large sums during high valuations.

"I would say there are two pieces of advice which are contrary."

Adam Fisher discusses the contrasting pieces of advice he has received, reflecting on the balance between cutting losses and being patient for potential late-stage value creation.

Future Outlook and Mentoring

  • Adam Fisher hopes to reduce his board responsibilities and focus on reading, writing, and mentoring.
  • He values imparting wisdom to younger investors and contributing to societal progress.

"You learn them too late to make them truly valuable to yourself. And so the best thing you can do is then try and give it to younger people."

This quote captures Adam Fisher's desire to mentor the next generation, sharing insights that may have come too late in his own career but could benefit others earlier in theirs.

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