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- Mike Maples, Jr
Mike Maples, Jr is a co-founding Partner of Floodgate. He is a repeat member of the Forbes Midas List.
Table of Contents
Founder Attributes
“You can’t achieve outsized results in life by doing things that others do — you have to do radically different things.”
Mike Maples, Jr looks for pattern-breaking founders who challenge the status quo and pursue their mission at all costs.
These folks are willing to be disagreeable. Novelty can sound like heresy at first.
“The mission of the breakthrough requires the courage to be disliked.”
“Great founders have a determined idea of a different future and they pursue it with reckless abandon.”
A great leader is a learn-it-all, who absorbs new ideas like a sponge and is incredibly mentally flexible in their ability to acknowledge when they don’t know how to do something or might be wrong.
You have to navigate the idea maze — look at every previous attempt at the boundary of you area and understand the assumptions behind them and why they failed
What other attributes has Mike seen in breakout founders?
All in: They’re going to make this startup happen even if they can’t raise money
Anti-fragile: They get stronger under stress
Chip on shoulder: They have unresolved differences with the world. They have something to prove and won’t accept failure as an outcome
Ethos of compounding: They practice something (work or non-work related) a lot
Conscientious: They see projects through
Radical determination: Lots of people in business are persistent, but very few have the radical determination seen in startup founders who ultimately break the mold
Ruthless prioritization: They’re tough-minded about the critical insights that power their business and the must-do things that have to happen, kind of like a Pareto principle
Storyteller: Great startups are a crazy journey that a bunch of people embark on (employees, customers, investors) where everyone is on a secret together. In order to make that happen, you have to be a good storyteller.
The best realize they’re not the hero of the story — the audience of their message is the hero and they’re helping them go on the hero’s journey
Mike’s biggest piece of advice for someone thinking about starting a company: “Start a company that is worthy of your talents, that you think represents the absolute utmost gift you have to offer to the world in your life.”
Mental Models for Seed Investing
“I’m not evaluating a product, I’m evaluating insights, inflections, and the capability of the founders to change the future”
Mike leverages 20-30 mental models to assess founders and ideas. Somewhat ironically, he formulated most of these based on his breakout misses, not his breakout investments.
Over the course of two years, Mike interviewed every successful founder he passed on to understand what he missed at the time, including Airbnb, Twilio, Pinterest, PagerDuty, and Anaplan.
The culmination of this effort led him to develop these mental models, which have led him to focus on assessing inflections and insights when considering a seed stage investment.
Inflections
“Still waters are bad for startups; startups win in chaotic, messy, wave-filled, current-driven waters”
The underlying current here is one or more inflections.
Inflections are change events bigger than the startup itself — something new that creates a set of empowering conditions a founder can harness to overcome any inertia that incumbents can impose.
They can be driven by technology, adoption behaviors, or regulatory changes.
Inflections are turning points. Timing is relevant. Why is right now the time?
Insights
Inflections aren’t enough. Founders need to generate unique insights enabled by the inflection.
An insight is a bet on the future that most people don’t see. It’s also a bet on the founders and their ability to be the team to make that insight real.
Mike asks himself: “How profound and powerful is the potential energy of the insight? And how capable, entrepreneurial, persuasive, and technically deep is the founding team?”
The team needs to have the stuff to bend the arc of the present into the future. It’s not just about finding the secret, you need to also move people to that future.
“When I do my job right, I’m investing in the power of the insight vs. the version of the product today.”
The pricing of the seed round matters in that it signals to Mike how consensus an opportunity is.
“When a seed round is priced at $20M post, it’s not non-consensus. It’s priced to perfection.”
The job is not to get into the hot deals, but to get into the great deal.
So, when does Mike get it wrong? He identified two main buckets of error:
1) Right about insight, wrong about team: “I love the insight so much, I don’t pay enough attention to the team’s capabilities to make it happen
2) Right about team, wrong about insight: Team seems so incredible that he looks past the power of the inflections and potential of the insights. Usually, in this scenario, the team ends up executing to a local maximum.
Purpose of a Seed Round
“You know you have it when it constantly feels like you’re just laying tracks right in front of the train.”
It = product-market fit. Maybe the most talked about concept in startups.
Like his colleague, Ann, Mike believes the purpose of a seed round is to find product-market fit, where you marry proprietary power with product power. If proprietary and product power are present, then a scalable business model is always possible.
Proprietary power is a startup’s unfair advantage.
Product power is felt when customers are pulling the product out of you — demanding it even if it’s half-baked
Mike synthesizes this in a phrase he repeats often:
“What can you uniquely build that people are desperate for?”
How does Mike help founders find product-market fit? His approach is shaped by the book, The Goal. He encourages founders to find their “Herbie” and resolve it.
What is a Herbie?
In the book The Goal, a line of boy scouts is hiking up a narrow trail. The group becomes increasingly dispersed as time goes on. The goal is to keep them together. The leader tries to order them from fastest to slowest so nobody is held up, but then they disperse again.
Then, he reverses the order from slowest to fastest. Herbie is the slowest. The kids behind him want to go faster, so they ask Herbie what’s in his pack and they start distributing that load. After that, things finally progress at a steady pace.
Finding product-market fit means progressively eliminating all Herbie’s until there are no more Herbie’s.
Mike asks founders: what is the BIGGEST thing impeding your progress? How can we take it out as quickly as we can? Everything else is wasted energy.
Competing with Incumbents
“Incumbents are vulnerable.”
Lots of folks shy away from markets with strong incumbents and prefer to look for whitespace. Mike is not one of those people. He loves backing outsiders who spot a new path.
The key to taking down an incumbent is to force a choice, not a comparison.
People don’t want something incrementally better. They don’t switch because of a comparison, but because they see something radically different.
Think about “orthogonal asymmetric attacks” — disorient the incumbents, do the opposite of convention, both in the what (the product) and the how (the business model).
Business is always a fight. The fight tilts in favor of the startup when it takes the competitive initiative to rewrite the rules of what customers can expect.
Mike leverages the “sword and the shield” mental model from Clayton Christensen when working with startups going up against incumbents.
Shield: Your go-to-market strategy is so different, the customer context you’re targeting is so different, that the incumbent doesn’t feel the incentive to attack you. This is the shield that gives you time to perfect the technology
Sword: Your sword is then the skills you build with this time that the incumbent lacks. By the time the incumbent realizes you’re a threat, your skills are too asymmetric.
One key aspect in the early days, especially in markets with incumbents, is not to waste time with customers who don’t value your advantage. They’ll ask you for requirements that don’t matter for creating a different future because they’re conventional thinkers in the present.
Many founders are so desperate to show growth that they will take on any customer. Mike instead advises founders to instead select your customers, don’t let them pick you. He’d rather founders go slow to find the desperate customers. Once you’ve got them, you don’t have to throw money at the problem of growth — you only have to syndicate the truth.
“Real growth is the accelerated accumulation of attractive customers desperate for your advantage.”
Building Teams at the Seed Stage
“Seed stage startup teams should look like a collaborative, improv jazz band, not a structured orchestra with sheet music”
In the early days of a company, Mike encourages founders to find people with innate curiosity and a level of jazz artistry, not just someone who is going to blindly follow rules.
You need people who will cut through the crap and think creatively to get through whatever obstacles are inevitably in front of the company.
Often times, these people will be “undiscovered” talent. It’s hard to pry someone away from a $500K salary to join a seed stage startup.
Discovering undiscovered talent is a key superpower of startup teams and requires having contrarian insights about people. This is something PayPal did well — most of the PayPal mafia were not established in tech before joining.
When hiring, Mike advises founders’ to leverage Matt Mochary’s method for reference checking:
When walking through someone’s resume in the interview, go through each role and ask them who their manager was and what they learned from them
When the interview is done, ask them if you can talk to those people vs. receiving cherry-picked references and/or trying to backchannel
When you speak to these former managers, ask them about the circumstances where they think the candidate is excellent and where not. What are their superpowers and achilles heels?
Mike encourages seed stage startups to build truth-seeking cultures from the get go. He points to Todd McKinnon at Okta as an example of someone who did this exceptionally well:
“Ego is about who’s right and truth is about what’s right.”
On Investing & Fund Management
“If you’re a seed fund and you don’t have an explicit strategy to get into one of the top 20 seed rounds of the year, you don’t have a business.”
Venture capital returns are largely guided by the power law. Mike cites that 97% of all exit profits in VC each year from ≤ 20 companies (out of 20,000 - 30,000). You have to find the top 0.1%.
In a typical year, the best startup in that year is more valuable than all the other startups founded that year combined.
As a result, Mike says, “My business isn’t about how often I lose, but the magnitude of the rightness when I win.”
Mathematically, it’s impossible for 2,000 firms to get into the top 20 deals. Psychologically, most VCs don’t set themselves up for this anyway. They don’t consistently execute a strategy to back the top 0.1% of companies with integrity.
Mike has seen that not many people are disciplined enough to do the thing they do extremely well over and over again.
“Discipline and patience are a form of arbitrage. Play your game by seeking inefficient markets while everyone else is regressing to the mean.”
What are some other characteristics of great VCs? When Mike looks to hire for Floodgate, he focuses on:
Mental agility: they don’t recruit people based on industry expertise, because business change too fast
Genuine curiosity: often exemplified when folks read a lot
Reflection: they reflect on their decisions in order to not repeat avoidable mistakes
Most importantly, perhaps, they find the joy of finding greatness much greater than the fear of missing out.
Reserve strategy is a critical decision for a firm. Floodgate approaches follow-on investing in a relatively unique way:
The allocation itself is pretty straightforward — 70% initial / 30% follow-on. Heavily weighted towards first checks.
What’s truly unique is how the follow-on dollars are deployed. Floodgate has a dedicated partner only focused on follow-on checks. Whoever wrote the initial check doesn’t get to decide whether Floodgate puts more money into companies down the road.
Why? They want the person who writes the first check to be irrationally committed to the success of the company. And they want every follow-on decision to be objectively weighed against other options.
How else is Floodgate differentiating themselves in a world of 2,000+ seed firms?
They try practice what they preach by forcing a choice, not a comparison.
Instead of participating in processes, they’re investing time upfront to get to know folks who might be great founders one day. They’re ideating with them and sharing their mental models.
“Greatness starts early; beginnings matter”
If and when that person decides to make the leap, Floodgate offers terms early before they launch a process and refuses to participate in a process if they do launch one.
Life Perspectives
“Integrity is the only path where you’ll never get lost.”
“Ill will towards others is a waste of time.”
“Holding a grudge is a symptom of not knowing how you want to spend the gift of a day.”
“Remember your kids owe you nothing — they didn’t ask to be born. Your job is to give them love, it’s not their job to give you love.”
“Hero worship is a form of not thinking for yourself — avoid it.”
“Defining yourself relative to someone else’s accomplishments, or how someone else acts, causes you not to spend the time figuring out how you can be yourself.”
Sources
20VC Roundtable: Is The Venture Model Broken? - 09/20/2023
Turpentine VC: How Floodgate Differentiated Again From Thousands of Seed Firms - 09/19/2023
What Got You There: Unlocking the Secrets to Successful Startup Investing - 08/06/2023
20VC: Three Core Lessons from the SVB Crisis - 03/24/2023
Invest Like The Best: A Playbook For Startups - 08/26/2021
20VC: Mike Maples, Jr (2020) - 05/11/2020
Pomp Podcast: Mike Maples on Finding World-Class Founders - 05/07/2020
The Knowledge Project: Living in the Future - 03/03/2020
The Tim Ferriss Show: The Man Who Taught Me How to Invest - 12/16/2017
20VC: Mike Maples, Jr (2016) - 10/10/2016
Stanford ETL Speaker Series: Mike Maples, Jr. - 02/01/2016
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