Mike Maples and Ann Miura-Ko on The Limits of Incubators, the Right Fund Size, and the True Meaning of “Pivot”

Last week we published the first half of an extended interview with Mike Maples Jr. and Ann Miura-Ko, the co-founding partners at Palo Alto, CA-based seed stage investing firm Floodgate. The focus in that part was on big issues like how Internet technologies are accelerating startup innovation, how investors have to adapt in response, and what types of entrepreneurs and business ideas attract the firm (Maples and Miura-Ko say they’re looking for “F-16 pilots” who can observe and adapt to changing conditions more quickly than the competition).

In the second part of the talk we got into some more concrete, nut-and-bolts questions—among them, the merits of the Y Combinator-style venture incubator model for launching startups and the difference between a true startup pivot and what Maples calls a “mulligan.” Maples also talked about why he wanted to grow his investing practice beyond angel scale and create a firm that would be “the absolute standard-bearer of early stage investing in a new innovation environment.” Here’s an edited transcript.

Xconomy: Sometimes investors say that they invest in teams, rather than ideas, or that they’re looking for great serial entrepreneurs rather than great product ideas. Y Combinator seems to put out that message a lot. How does that fit with your approach?

Ann Miura-Ko: A lot of people say they just bet on good teams, but I don’t think we’ve ever invested in a company that was just primarily a good team. There is always something about the insight they have that’s proprietary in nature.

Mike Maples: And we don’t necessarily look at being a serial entrepreneur as a positive. Just like some people try to convert it into a science, this idea that you can be a professional entrepreneur is a little bit suspect. Some people have shown they can do it, but the truly great companies get created by first-time entrepreneurs, and great entrepreneurs very often only have one great company in them.

You get some examples where that is not true. You can point to Evan Williams, who started Blogger, then Odeo [which grew into Twitter], but even those were both on the same vector—they were both about sharing and democratizing Web 2.0 content. Very few entrepreneurs are successful in multiple generations of technology or multiple eras of the technology business. It’s authenticity that we look for. Is this entrepreneur truly an authentic match to the opportunity?

X: What about this notion of the startup “pivot”? So often these days, that seems to be a euphemism for, “Oops, our first idea was wrong, and we still have some angel money in the bank, so we’re trying something completely different.”

AMK: That’s not what a pivot is. The whole concept of a pivot is to keep one foot grounded and move the other foot.

MM: I think people have dumbed down the term to mean “We failed the first time so we get a mulligan, let’s try again.” The real reason to pivot is when a great startup starts out saying, “I want to be one of the 15 awesome companies of this year.” And such a company is willing to continually ask themselves if they are on the path to greatness. If I am not on the path to greatness, then it’s axiomatic that I have to pivot. That is the thing that people miss. A lot of companies could be fairly successful in their current business, but the founder has the presence of mind to say that “Merely being successful is not enough, I have to be great.”

AMK: A pivot, for me, is taking one component of your business model and changing it somehow. There will be ripple effects on the other parts, but it’s really just … Next Page »

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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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