On this special segment of The Full Ratchet, the following Investors are featured:
- Paul Madera of Meritech Capital
- Jeff Bussgang of Flybridge Capital
- Victor Orlovski of R136 Ventures
Each investor highlights a situation where they decided not to invest, why they passed, and how it played out.
The host of The Full Ratchet is Nick Moran of New Stack Ventures, a venture capital firm committed to investing in founders outside of the Bay Area.
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Transcribed with AI:
0:19
Welcome back to TFR on today’s special segment, we ask guests to discuss their anti portfolio, a startup investment that they passed on. Here’s the segment called Why I passed
0:35
on today’s special segment, we have Paul Madera, co founder and general partner at maritech. Paul, can you tell us a story about a startup that you passed on?
0:45
Certainly, Netflix is one that I passed on. I know, and my wife likes to remind me of that one frequently. But in my defense, when we did first look at them, Palantir is another one. By the way, when when we first look at Netflix, it really was blockbuster by mail, CDs, DVDs, by mail. And there wasn’t really great feedback as to how renewable this service was. I mean, intuitively, we thought it was, but it wasn’t. There wasn’t really a lot of data to look at. The Palantir story is probably a little bit better. Peter Thiel introduced me to Alex Karch, CEO of Palantir, early on, and they had one to 2 million of revenue. And I remember talking to Alex and thinking, Oh, it’s pretty cool idea. But you know, who knows how big that can be, and whether or not people really buy it? No, thank you. We looked at it again three more times. Oh, and passed every three times because the price seemed out of line with where it was, and, and, and, yes, I really do regret missing the highest multiple software company that exists in the market today.
1:58
Brutal was the services and the labor component on Palantir. Was that a hesitation, or was it more just the price?
2:06
It was more the price at the time. You know, we didn’t actually get into it enough to understand the mix of service and so forth. And it was largely military focused. It wasn’t really in the commercial world at the time. And and by the way, you know, Palantir had to sue the US Army in order to get traction within the government at the rate that it should have, which is another reminder for all of us, just sometimes the DoD can’t make the decisions that are best for it.
2:40
On today’s special segment, we have Jeff busgang of flybridge. Can you tell us a story about a startup that you passed on? Well, I’ll tell you a
2:48
story about a startup that we pursued but missed because it’s just a heartbreaking company story for us. We had a thesis around vertical SaaS 1015, years ago, and my partner, Chip, had the wonderful opportunity to meet a company called Viva. And at the time, they had a different name, but they were a team that was building a vertical SaaS platform for pharmaceuticals. And we pursued the company. We decided we loved it. We issued a term sheet, and on Friday, we were told we had won the deal. Now the company was in the valley, and unfortunately, as a Boston, New York firm, you have a disadvantage for chasing hot deals in the valley, which we, of course, suffered, and by Monday, we had lost the deal. Viva is that $30 billion market cap company you’ve never heard of, but it’s a company that not only is worth 30 billion, but they only raised that round which emergence ended up leading, and it’s been one of the most successful series A’s ever, because they never had to do a B or C, A, D round and dilute the company dramatically, because they were so efficient in their execution. So that was a very, very painful Miss for us. Brutal.
3:59
Well, I do, in fact, know vivo, because some of the the early folks there split off and built a company in Boston that that we backed. So Viva is a truly exceptional one, and I wish there were more studies on it, and it’s too bad that one didn’t work out
4:21
on today’s special segment, we have Victor Orlovsky of our 136 ventures. Victor, can you tell us a story about a startup you passed on and what you missed?
4:30
Oh, I have many stories. You know, when I met and I met Mark Andreessen, I think back in 2015 when I started my journey, and I was luckily celebrating my birthday. I think that was 2015 or 2016 birthday. And he was like, there in a small group of people organized by my friend and Mark said, like a very, famously known story about, like, fear of missing out. He said, When I’m investing in a startup. Brenna, which doesn’t make returns and blows away. I don’t feel like Sorry, because I’m in the high risk business. I’m like, in a high risk business, I know that there will be 10 companies, nine companies out of 10, which are not going to make it. So it’s like the whole story about venture. So you invest $1.10 times, nine companies will lose this dollar, but you can only lose $1 right? If you invested $1 and if one company makes you 100, you are better off like 90 plus, right? So, I mean, that’s fine to lose, right? You are prepared to lose, by nature of this business. But what really makes us, like sad, like venture investors, when you open like newspaper in the morning, or just go to your newspaper and see the company goes public with like, astonishing 100 billion dollars relation, and now you remember that you passed on this company 10 years ago, and that’s where this fear of missing outcomes, right? So what the hell? How did I like lose it? Why didn’t I make this investment? And Silicon Valley is famous all the stories like I know, like bunch of people who have missed Google, who have missed a bunch of, like, Facebook, bunch of other investments. So obviously I do have many right whom I didn’t invest to. I think that reflection is the right thing. You should really think of that proactively, positively, by the way. I mean, first of all, we should not be sorry, but you should really find out. And I put like, a lot of notes when I do investment, I maybe put like five, six pages of why I do investment. When I don’t do investment, I put like, 10 pages or 15 pages of notes reflection why this company is not good. So then I can just go through and understand what was wrong with that. So you know what really doesn’t help, especially in early stage, when you think of a problem, of a product rather than people I famously known, and you mentioned chime bank, right? So I know investor, a very I don’t want to name him. He’s a friend of mine. He’s one of the best investors. He passed on chime, although he invested in a bunch of great companies like Coinbase, like, like many others, right? So, amazing investor, one of the best in FinTech. So he, and he was the first one to speak with chime on seed round and chime founders, you know that they just made this green dot before sold it and they started doing what they did with green dot. But Green Dot was like this paper based, like, out of the counter stuff. And they decided to do almost the same, but in pivot and take pivoting it in the digital and he said he passed on that. And asked, ask him, Why you passed on that? And he said, Victor, you know, I started thinking for them that that’s this product. Makes no sense. So, I mean, this was a great team, but I started thinking about, like, an operator, will I do it? I mean, would I do it? No, right? Is it makes sense? No. And I passed. So you should not, like, think, you should not put yourself into founder set, right? So you should like, really believe the team and assess the team, especially in an early stage. So I think that’s important.
8:30
That will conclude this installment of investor stories. If you’re enjoying the program and would like to see it continue, take a moment and leave a five star review in iTunes. Okay, that will wrap things up for today until next time over. Prepare, choose carefully and invest confidently. Thanks for joining me.
