Mike Maples Jr. is a prolific angel investor and co-founder of early-stage venture firm Floodgate.
He's made a lot of bets over the years, some of which have paid off big time (Twitter, Twitch, Lyft, Bazaarvoice, etc.), and some of which haven't.
I interviewed him on a recent episode of the Equity Podcast and we dug into a variety of topics, including his most memorable investments, investments he missed out on, what he looks for when evaluating startups that pitch to him, and his new book, “Pattern Breakers: Why Some Startups Change the Future,” which he co-authored with Peter Zibelman.
This interview has been edited for clarity and brevity.
TechCrunch: You coined the term “Thunder Lizard,” which is a Godzilla metaphor to describe a handful of really good companies that are a very destructive mutation of capitalism. How did you come up with that?
Mike Maples: I was looking for a word that wasn't too jargon-y. Thunder lizard. The metaphor comes from Godzilla, who hatches from a radioactive atomic egg, swims across the ocean, emerges with a different attitude, and starts breathing fire and blowing holes in buildings and eating train cars like sausages. And I've always thought that was a good metaphor for startups. Capitalist mutations come out of nowhere and change the rules whether you like it or not. My job is to find them at the atomic egg stage.
Are these atomic eggs harder to find now than they were 10 or 15 years ago?
Maybe. I think it's about the same number, but there's a lot more noise. My friend Andy Rachleff, who helped me start Benchmark, tried to figure out how many companies are started per year that achieve $100 million in revenue as standalone companies. In the U.S., it's about 30, plus or minus 5. That's not a lot.
There are a lot of startups with good exits, but not many that are truly future-changing, which is why 15 years ago it was easier to be sure that entrepreneurs were doing it for genuine reasons, not because they wanted to be high-ranking founders.
So does that mean there's a lot more competition for investment now?
Yes. Ironically, when a startup opportunity is competitive from an investment standpoint, it's usually a bad sign. Usually, it's a sign that everyone likes it, which means it's too similar to something that's already come along. That's why the best startups I've been involved with are completely different from anything that's ever happened before.
A great startup is, in some way, an affront to modernity. It's at odds with modernity. As a result, most people hate it. And if a lot of people like it, it's not groundbreaking. It's unpleasant. [when there’s too much other investor interest]… It's the polarizing ideas that win. The ideas that most people hate. But the few who say, “Oh my goodness, where have I been? I crave this.” That's what we really want.
We talk about risk, we talk about bets, we talk about success. But along the way, I'm sure there were bets you took that didn't necessarily pay off. Can you think of any bets that were particularly memorable for you and that you learned a lot from?
Warren Buffett invests in companies, and Warren once said, and still says, rule number one: don't lose money. Rule number two is, don't forget rule number one. Rule number one in my business is don't pass on Airbnb because the only thing you can lose is 100% of your money. So Brian Chesky offered me the opportunity to invest. It was valued at $1.5 million, and if I had invested, I would have made 6,000 times my investment.
It may have been a failure, but there are plenty of success stories like Lyft. Why did you end up investing in this company?
Some of it is instinct, some is luck, some is timing, and many other factors. Lyft leveraged the fusion of a GPS chip with an iPhone 4s. Fusion is critical because it forces founders into an unfair fight. Business is never a fair fight. Advantages are given to incumbents by default. So startups must have mechanisms to make the fight unfair on their terms. To wage war against the status quo, you need asymmetric weapons. Fusion is something new that gives entrepreneurs new powers they can leverage to create something innovative.
You mentioned earlier that there's still a lot of opportunity for big change in areas like genomics and AI. In your opinion, has AI reached a tipping point, or is it still a long way off?
AI is one of those things that seems like more than just a change. It seems like a sea change. When I was a kid, the IBM PC and the Apple II ushered in the era of mass computing. Then we had Moore's Law, and computers exploded, and we had the era of mass connectivity with the internet and smartphones, and everybody in the world was connected by these networks. And now we're in the era of mass cognition, and it feels like cognitive operations are starting to get cheaper and cheaper and more powerful. So I see change on a weekly basis. Every week there's a new LLM that leapfrogs the previous one, or Sam Altman does a new demo that makes something that was supposed to be remarkable obsolete.
So, in your opinion, is this big change brought about by AI justified or do you feel it's been over-hyped?
I think both can be true at the same time.
AI will be a game changer, and those who believe it are right, but some companies are also vastly overvalued.
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