Unit 30 of 63
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Being Primed For The Problem And The Idea

Note: you can start at 3’42 for the topic discussed here, although we advise you to watch the whole video (it’s only 8 minutes long.)

 

Venture Capital is a people business and, therefore, not monolithic. That’s why we like to present different opinions on how to be successful at it, as long as the people carrying these ideas are legitimate.

In an almost direct counterpoint to the previous video, Initialized Capital’s Garry Tan explains why he invested in Coinbase when no one else would. That $300,000 seed check returned over $2 billion to his fund.

His answer: you have to be “primed for the problem”, i.e., possess prior knowledge that will help you better assess the startup’s potential. In Tan’s case, he knew first-hand how hard it was to acquire bitcoins and was therefore in a good position to understand the value and elegance of Coinbase’s solution.

Secondly, Tan was primed for the idea. He knew from his previous job at Peter Thiel’s hedge fund that so-called fiat currencies were ready to be disrupted.  

It’s probably not a coincidence that some of the best early-stage investors of our time such as Fred Wilson, Brad Feld, and Paul Graham are curious about topics reaching far beyond the VC sphere. Having a broad knowledge of the world, its history, and other disciplines primes them well for disruptive ideas no one else can see succeeding.

Do you know of other similar examples, where Investors made a successful bet thanks to prior knowledge about the world?

💬 Let us know in the Comments section below.

👀 Sources & Additional Material

The 7 Secret Evaluation Criteria Venture Capitalists Use To Make Investment Decisions, our webinar on the implicit criteria influencing VCs’ decision-making. You can navigate the video to point #3 – Being Primed (use the white dots in the player bar)

“I don’t look for companies. I look for Founders.” — Masayoshi Son, a perfect example of how an Investor (Masa Son) may be primed by his or her personal history to bet on a Founder (Adam Neumann) despite all odds

“Smart idea, grounded on exhaustive research, followed by a big bet.” – Julian Robertson, or how VCs may be negatively primed and not recognize a disruptive wave

  • Nubank’s founder was a Colombian expat that was puzzled by the complexity of opening and managing bank accounts when he moved to Brazil. He went on to create a fintech that provides quick access to most financial services, which has really disrupted Brazil’s banking market. It has now over 40 million users and recently had its IPO.

    Another case is Printi, created by two expats in Brazil. The father of one of them had experienced first hand the difficulties of the quick printing market in Brazil and was the main motivation behind their business idea.

  • I think being primed is a double edged sword. For example, if Elon Musk was told that Space Business isn’t easy and just told that it wouldn’t work, he might not have started SpaceX or studied about building rockets himself. So, it can act positively if you think it will work and negatively if you think it won’t.

    • There is, indeed, positive and negative “priming”. I give specific examples in the first webinar referenced above. By the by, I believe at this stage that people—especially entrepreneurs—are not primed because they are “told” anything, but because of their own interactions with an idea or a problem. To be discussed.

  • It’s funny to hear him say that coinbase is valued at over $100 billion. It’s currently worth around $15 billion. Being a VC during a historic tech bubble must have been fun.

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