Shoot for the moon – how venture capitalists think

Photo credit: Pixabay.

Shoot for the moon, reach for the stars. Entrepreneurs are often the pilots of such inconceivable projects, but many times it’s the cash fuel injection that gets them there. Last week at the venture capital (VC) conference Moment 2016 in Tokyo, panelists David Lee from Refactor Capital, Craig Sherman from Meritech Capital Partners, and moderator Gen Isayama of World Innovation Lab spoke about how to identify rockets before liftoff.

From left: moderator Gen Isayama from WiL, Craig Sherman from Meritech, and David Lee from Refactor.

“The impact from a society impact should be numbered into terms of a thousand ‘X’,” says David. While home run deals are more about making money, moonshots don’t just make money, they change the world in a significant way. There’s a certain romance to the projects according to Craig. They may be higher risk and require greater capital from the VC, “but it’s part of our jobs.”

To illustrate, David highlighted the passion and purpose in Google’s work for preventing and treating cancer. He notes that Google should expect 100 to 200 failures but won’t see founder Larry Page bothered by the results, “the nature is that one that hits is going to be 100x.”

“If you want to exist 100 years from now, you want your grandkids to know your company, you have to invest,” Craig emphasizes. The largest companies in the Japan and the US will not be the largest in 100 years. “Most companies find one thing that they get very, very good at. And that’s what makes them big. The world will need other things, the customer will be asking for other things.”

Riding the solar wind

“As an early investor, whenever I think of moonshot I still think of software,” says David. “Software driven by cheap, abundant data.” He prefers a founder CEO who is technical and able to match the strategy and strengths of their company with an understanding of advancements in technology. Facebook and Google are great examples of this. “What has the founder said from day one? Is he or she consistent with that vision? And frankly do they have a track record of executing on that vision?”

Craig (left) and David discussing the power law.

The founder should be qualified to take risks. Jeff Bezos of Amazon has been very clear in his plan to build long term business value. According to David, the successes of voice control system Alexa and hosting service AWS make up for failures like the Amazon Fire phone.

Craig remarks on the first time he met Mark Zuckerberg in 2005, “I joked with my wife that he was so confident at 20.” He had never met anyone like that before. He saw the world completely different and he had confidence in his vision. Zuckerberg looks for the world’s best to add to his team. He “worked his ass off,” even recruiting PayPal president David Marcus to the Messenger platform.

Be irrational

Often times investing in a future moonshot goes against conventional wisdom. David says sometimes investors judge the service to be “sleazy.” Internet – porn. Facebook – hooking up. Snapchat – sexting.

Technology investing is a function of your brain and your imagination.