One might argue that Floodgate, a Bay Area-based seed-stage venture firm, punches above its weight. The 15-year-old firm has about $500 million in assets under management — including a $150 million fund it quietly closed in January — and makes a handful of new investments each year. But it was valued by investing in Okta, Lyft and Starkware 8 billion dollars in May and more The intensive approach seems to be paying off.
Writing too few checks, especially in a high market, can frustrate some investors. But over the years, Floodgate’s small team has sifted through thousands of pitches, forcing him to identify the ones he thinks have the most potential. Now, co-founder Anne Miura-Ko and Tyler Whittle, the company’s senior associate, have developed a new program to help groups of students alike understand what big ideas look like and why most concepts aren’t big ideas.
To get more details about the program — and also to hear Miura-ko’s current perspective on the seed stage startup scene — we spoke with her earlier this week. Our chat has been slightly edited for a long time.
TC: This summer, you invited several students to work with you on startup ideas here in the Bay Area. Were they creating companies together? How did it all work out?
Morning: We went to the builders community we built a year ago. [Stanford’s] School of Engineering [where I teach], and to the CS department at several universities and said, ‘Hey, if you’re interested in being a future founder and you’re a great builder, we’re interested in talking to you.’ The main message there is: ‘We don’t want you to have an idea to work with. We want you to be an amazing builder with an amazing curiosity.’ in part, [that’s because] You need to quickly build and dispose of the product [sometimes] But you should be curious about the history of the industry you’re working in. .
The goal is to help them identify big ideas. What is the meaning of a big idea and how do you know it when you see it?
I understand that there are two types of businesses that can be really big. One: you have an idea, and most people understand this idea perfectly, but you are better at action, and you can make everyone else do it. I realized that as a seed investor, we have no use investing in those companies because we haven’t seen enough jobs to know who is better at that kind of startup. So when the inventors heard,[You] We want to pull a little more before we make a decision,’ I believe that’s probably because you’re running a more operations-oriented business that’s more focused on insights compared to the second type.
Insights-driven trading is really about identifying what we call an inflection point, which has a few components. First of all, there is a change event. It could be technical — CRISPR was invented — or a regulatory change event, like telemedicine being allowed across state lines, or it could be societal. People are now only applying for the most common work from home jobs.
A change event makes a new feature possible, or a product can be built cheaper or faster, or you may have an entirely different business model made possible. [For example] They have issued a license to pay monthly or vice versa. Or the business ecosystem will fundamentally change.
When this happens, if you can tie it [that inflection point and change event to]’So this will create fundamental traction and adoption of my product over the next two to three years. [funding]. [And] That’s exactly the kind of thing we want our students to understand.
Are you giving money to these students?
yes. We’re writing $50,000 checks to all these companies, and then some of them end up saying, ‘We’re not doing this anymore,’ and at this point, they close up shop. [But] We had two companies. [going concerns] By investing from us, and one can take on an additional investment and one [already] He took foreign investment. And we have four companies out of 10 that continue to operate.
How much stock would that $50,000 buy you?
We’re still revising that for next year, so I don’t want to put a pin on what we’re doing. But it’s a safe note. And then for further financing, depending on the person’s needs and also varies [it’s tied to] when is We invest into that company, so it varies in the valuation as well.
Four out of 10 is a pretty good hit rate. Were these students mainly from Stanford?
The amazing thing is that we had Stanford students, but we also had students from the University of Texas, Yale and Penn, and the University of Texas, so it’s a mix of a lot of different universities. . . And we’re really excited about trying to expand to as many universities as possible. One interesting thing we learned is that Stanford students are very well-educated when it comes to startups. The beauty of Stanford students being part of this network was that our Stanford students put other students in networks that are very lucky to have Stanford students.
I remember a 19-year-old Stanford student, maybe 10 years ago, who said he felt pressured to become a founder because of the school’s culture. Does that concern you?
yes. That’s why I designed it in mind for you to have a way out. I think it’s important to realize that not everyone has to be a founder. And in fact, in my interactions with my students, I tell certain students that I really know, ‘You have these amazing skill sets that are so unique and not found in many people, you should go to a big company. ; You’ll have a lot of influence there.’ I directly advise students not to become founders. [because] Is such a specific need or [requires] Such a special skill is reserved for a certain period of time and should not be for everyone from my own personal point of view.
I agree with you. I think there is a certain pressure for technical people [and] For those who have good ideas to go in that direction. But my hope is that by really giving them that kind of exposure, they can find out if there’s a founder in them.
Out of curiosity does Floodgate use Scout?
We don’t have a scout program. I guess our network of friends and family and founders are technically our scouts. But we don’t have a financial program like most people do. I have these ‘unmarried’ networks that I meet on a regular basis – these are angel investors and investors with a small amount of money – and what we do is we share three or four interesting companies that we have seen in the last two weeks. And we are sharing with each other how we work hard. And if other people are interested in looking at the company, we invite them to enter.
On a smaller scale, Y Combinator just finished its latest demo day. As a seed investor, do you follow YC closely? What do you think about the company today?
I think they provide a great service for founders, and I think people who want exposure will get it [it]. I have a lot of respect for the product they offer and the community they provide, and the way fundraising has been enabled because of it.
For me, it’s a very difficult platform to engage with. If I’m only doing two to five investments a year, if I sign tonight, you know, it’s one price and if I sign tomorrow it’s another, and [the founders] They don’t really know me, but they’re willing to sign up with me – like, none of them seem right. So the ones I’m involved with are founders I knew before they joined YC.
But I can see why the founders love it and I think there’s a lot of work they’ve put into the product and I’m not counting YC. I know every year, some people say that the portions are too big and everything is too complicated and expensive. But you know there might be a runaway ball or two in every team.
