251. Funding the Misunderstood Technical Founder, Self Evaluation as a Solo Capitalist, and Capital to Underwrite R&D risk vs. S&M risk (Farooq Abbasi)

Full Ratchet Farooq Abbasi Preface Ventures

Farooq Abbasi of Preface Ventures joins Nick to discuss Funding the Misunderstood Technical Founder, Self Evaluation as a Solo Capitalist, and Capital to Underwrite R&D risk vs. S&M risk. In this episode, we cover:

  • Walk us through your background and path to VC
  • Why did you launch Preface?
  • What’s the thesis at Preface?
  • How do you define enterprise/infrastructure frontier enterprise?
  • What’s most different about your approach?
  • Are the businesses you fund created and ideated by the founders or is it a collaboration between you and the founders or do you take concepts and bring them to future founders?
  • What’s your approach to sourcing?
  • Because your model is different and the founder profile is a bit different than most…  in what unique ways do you provide value post-investment?
  • You’re a solo-capitalist…  How do you evaluate yourself and keep some checks/balances on your decisions?
  • Did you put together an LPAC — if so how big is the group, how often do you meet and when/where do they help?
  • Are you actively investing in open-source startups?
  • What are your thoughts on the Bifurcation in the VC industry… capital underwriting of R&D risk vs. S&M risk?
  • What are your thoughts on biases in founder selection, data-driven predictors of founder success?
  • What’s been the greatest challenge in your VC career and how have you overcome it?
  • You’re passionate about Diversity, having founded Diversity.vc in 2016. How are you practicing a more inclusive style of venture capital?
  • Three data points…  hypothetical investment scenario

Guest Links:

Key Takeaways:

  1. Farooq Abbasi, a son of an Indian immigrant family, planned to become a physician like his 45 doctor cousins. However, at 19 years old he was introduced to VC by Mood Rowghani and that changed his journey. 
  2. At some point, Farooq realized how much he enjoyed being an individual decision-maker and launching Preface Ventures was the right opportunity for him.
  3. Preface Ventures exists for the founders that are “unloved” in Silicon Valley and it is focused on enterprise infrastructure.
  4. The founders that Farooq funds oftentimes just have an idea on a whiteboard or napkin but they have a defined point of view of a technical problem they solved.  
  5. Farooq uses a proprietary algorithm to find founders for potential investment opportunities. He starts to build relationships with founders early often even before the founder starts a venture. 
  6. Farooq’s post-investment added value: “For the first hundred days, I’m always there, I’m always accessible, I want to earn the right to be the first call, not just in times of goodness, but also in times of challenge… like I care about these people because they’re human beings.”
  7. Farooq is a solo capitalist and GP, and he has established relationships with partners that provide instrumental feedback for investments. 
  8. One of Farooq’s hot takes is on open source startups. He is actively investing but with an incredibly high bar. Farooq explains there’s data to show that open source startups have a proven distribution model, but not so much a proven revenue model. Farooq thinks the better risk-reward for investing in an open-source tends to be post-revenue. And that’s usually around sort of Series B and plus.
  9. “Biases come out in human decision making when you have imperfect information, and my god venture is imperfect information.”
  10. Three questions: What technical or product opinion is contentious in your industry? Why now and why the customer believes? What would make you stop working on this?