Why Mike Maples – an 8x Midas List Alum – Completely Reinvented How Floodgate Looked for Investments

Mike Maples is a star on the venture capital scene.

In 2006, he co-founded the VC firm, Floodgate, that put seed investing on the map. He's been on the Forbes Midas List eight times in the last decade, has taken two companies public (Tivoli Systems and Motive), and was an early investor in Twitter, Lyft, Twitch, and Chegg.

While Mike has risen to stardom, his path to greatness was filled with doubt and uncertainty. Seventeen years ago, the idea of a seed fund was nascent. While technology had changed, and made it easier and cheaper to validate ideas, the venture landscape hadn't.

Mike sensed a gap in venture capital and set out to prove the idea that "$500k is the new $5 million." After a series of quick successes, Mike quickly filled the gap as a new breed of 'Super Angel' and established Floodgate as a top early stage investor.

Over the next two decades, competition became fierce as thousands of seed funds joined the movement Mike started. So Mike had to make a decision – compete for deals based on Floodgate's brand equity and track record, or find a new way to source deals.

Never one to ignore his own advice, Mike chose to divert from the crowd. This meant shifting his focus from investing to proving out a new hypothesis – a risky proposition that could sink Floodgate and destroy Mike's reputation. Or, propel both to new heights.

I sat down with Mike to talk about his biggest decision of the last ten years: reinventing how Floodgate looked for investments.

You can read our full conversation below or watch it on our YouTube channel.

Enjoy.

What was the biggest decision you made in the last ten years?

I'd say it was to utterly change how we found investment opportunities at Floodgate, which was a little bit scary because we were one of the original seed funds. So a lot of people might say, well, why mess with something that's working? But the problem we had was: back when we started Floodgate in 2006, there weren't a lot of seed funds.

The only question was whether seed funds would even work. Well, now there's over 2,000. So we had to deal with the fact that there were 2,000 competitors. How can you possibly compete the same way when you have 2,000 competitors? So we decided we needed to rethink our strategy completely.

What were the options you considered?

One option was to just say, hey, why not just compete? There's a bunch of firms, but fine. Just be better at it. We've been doing it longer, we've had some wins, we've got a reasonably good reputation, so don't overthink it, just keep going. 

The other option was to radically shift how we thought about finding startups. The traditional way to think about it is: there's a bunch of good startups and they're pitching VCs. It's kind of like a sales funnel–you try to find them, you try to pick the best ones, and you win them when you can.

But the other strategy would be to just deny the premise of that completely and start over with a whole different framework.

How you come up with this framework in the first place?

Well, as you probably know Adam, from some of our talks, I like to say to founders–you want to avoid the comparison game when you're a startup. You want to force a choice and not a comparison. 

And how can I say that to an entrepreneur with a straight face if I'm competing with 2,000 firms? It's just hypocritical. I either believe that or I don't. So I decided I had to redefine some assumptions.

The place I ended up getting to was: is it possible to predict a great start-up or future founder before they've started anything? And to know that person before they start a startup? And to have already mutually decided we want to work together if they start one someday?

That's a little bit risky, because you could just be wrong. You could be wrong about who's going to be a founder in the first place. You could pick the wrong people who start bad companies. They might start a company and not pick you.

In the meantime, deals are still happening in Silicon Valley that you're not chasing, so there are a lot of risk factors, but at least it was an opportunity to be different.

How did you go about making the decision?

I felt like we had to at least try. I decided I had to allocate 70% of my time looking for new opportunities. I had to say, okay, I'm not going to focus on investing in startup companies. I'm going to invest in focusing on building relationships with great future startups, what I call prime movers. 

And I'm either going to convince myself that it's possible to succeed at that or I'm going to declare it a failed hypothesis. But I have to be willing to devote 70% of my time to it for at least a year and then decide.

How did it turn out?

So far so good. This is a business with very long feedback cycles, but one example of a company that I funded along these lines was Applied Intuition.

I spent a lot of time with Qasar Younis in advance of him ideating on the idea, and eventually got to be part of the original funding round. And that one's done pretty well.

There's been several like that that have got off to a pretty good start. So, you don't know for another at least two years whether it was a good idea to invest or not. But so far the indicators would suggest we might have something.

What advice would you give to both venture capitalists and the everyday manager based on your experience with this decision?

I'd say that, fundamentally in life, you have to always decide whether you're going to go for the consensus or venture out on your own and be different. And that's true whether you're investing in the stock market, whether you're being a founder, or whether you're being a venture capitalist.

What most people want is the can't lose option. But the problem with the can't lose option is on the other side of that same coin is the can't win option. So the only way you can win big is if you're prepared to be very wrong. There is no other way.

You can't divert from the crowd without potentially being very wrong, but you can't achieve greatness without also diverting from the crowd. So you always have to make the decision to divert from the crowd if you're going to be a super performer.

And the problem is, when you divert from the crowd, the only thing you know in the short term is that you're diverting from the crowd. You don't know if you're right yet, but you can't get the benefits of being right unless you're willing to do that upfront work to divert from the crowd.