First Stage Investor

Five Things You Can Learn From a Successful Investor

Five Things You Can Learn From a Successful Investor
By Andy Gordon
Date October 22, 2018

I talk to startup founders all the time. It never gets stale.

A big reason why is that extraordinary founders have extraordinary insights into the markets they’re disrupting. Well, the best ones do, anyway.

I also feel the same way about smart, successful investors. It’s always fun to compare notes, especially in person-to-person chats.

Of course, it’s impossible to meet and get to know all the investors you admire. Some you just have to follow from a distance… on Twitter and through the media.

That’s how I got to know a remarkable early-stage investor by the name of Kirsten Green. If you don’t know her name, you also probably don’t know the venture capital firm she founded, Forerunner Ventures.

Her firm invested in both Dollar Shave Club and Both had exits of more than $1 billion in 2016. Not bad.

She did an interview with Fortune back in February, which I remember reading and liking. For some reason, I came across it again today and was once again impressed with what she had to say about the art of identifying great startups.

I thought it would be useful for me to share some quotes from that interview. Here are my five favorites and my own take on them…

“[An incredible product] isn’t the win – that’s just table stakes.”

Green’s point is that you should assume your most capable competitors are also putting out incredible products. So you need to do more. My take is that developing a product and developing a company are two distinct skill sets. Even at the seed stage, you can see pretty clearly if the product is up to snuff. Growing a company is a harder skill to evaluate. If the founder has done it before, it’s a nice clue but not as definitive as I’d like. Companies succeed and fail for complex reasons many times.

My complimentary quote (that I already said in the past or should have): The best product doesn’t always win the market, but it’s a heck of a start.

“A great experience today… must be personalized to the consumer, and that’s where data plays a huge role.”

I almost didn’t include this because it’s been discussed so much recently to the point of becoming gospel-like. So I want to take another tack. Even if you can’t personalize your product, data can have an important role to play. Case in point is First Stage Investor portfolio company NowRx, a same-day drug-delivery service. It’s creating a prescription database, but NOT in order to customize its services. It wants to identify patterns of drug usage over time, which would represent a gold mine of information to pharmaceutical companies, health insurance companies, hospitals and doctors.

My complimentary quote: This is where marketing is headed. It’s becoming increasingly data-driven. It’s what clients want and will pay handsomely for.

“A founder [should have] a unique understanding of the segment of the market they are trying to address and disrupt.”

It can come from knowing your customer better than anyone else, which is Green’s view. Or, in my view, it can come from a deep well of experience in the market segment. When I completely and immediately understand what a founder is telling me about their disruptive attack on an industry, I’m actually dismayed! It shouldn’t be that easy… not if the explanation is at odds with conventional thinking. What Green calls a “unique understanding,” I call “unfair knowledge.”

Here’s my complimentary quote: I want answers that surprise and confound me… When a founder attains the level of “unfair knowledge,” they are one step (or several) ahead of the competition. And as competitors try to catch up, the founder is working on a solution to the sector’s next great problem.

“Amazon doesn’t check every box. And this ties back to the fact that the consumer is always asking for more. And that is the challenge and the opportunity.”

Quite right, it doesn’t check every box. It doesn’t do drug delivery well, which is why I had no Amazon-inspired qualms about recommending NowRx. It doesn’t do direct-to-consumer apparel well, which is why I had no hesitation when recommending Digital Brands Group (formerly known as DSTLD).

My complimentary quote: Convenience. Value for your buck. And trust (that you’re getting what you pay for). Bezos built an empire around these fundamentals. But trust will soon come from the blockchain a company uses instead of faith in a brand.

 “The commerce market was really up for reimagination. The access to information had changed everything from what consumers were buying to where they were buying it to how they expected to buy it.”

She’s talking about 2010, when she noticed a shift in commerce. I had a similar epiphany this year, only it was about the home-buying market. I was vetting First Stage Investor portfolio holding Home61.

This is what I said about it in my final complimentary quote: Home61 is reinventing almost EVERYTHING Re/Max and Century 21 do, creating a faster, more efficient and user-friendly version where buyers, sellers and agents have access to real-time data to make informed decisions. It’s game changing because it’s so ambitious. It’s so ambitious because so much had to be discarded and reinvented.

Some things to keep in mind as you come across startups that excite and intrigue you.

Invest early and well,

Andy Gordon

Co-Founder, First Stage Investor

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