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What are the traits of these rare startups?
Mike Maples likes to hunt Thunder Lizards, young startups that hatch into Godzillas, disrupt the status quo and stomp on the incumbents. So far, so good. Since moving out to the Valley five years ago, he's put investments in the micro-blogging phenom Twitter, Chegg, an online college book rental company, and popular iPhone app maker Smule, to name a couple. He also invested in SolarWinds, a maker of network-monitoring software, which went public last year and remains above its IPO price.
Mike runs Floodgate a "super angel" or "micro-cap VC" firm helping to fund companies seeking $200,000 to $500,000 on the low end to $1 million at the high end. He's currently fundraising for a new fund.
It's a low-probability game that Mike is playing. Between 2003 and 2009, some 1500 startups received investments each year on average, according to his research. And, of that batch, eight had exits over $750 million and 80 had exits over $50 million. But that's not stopping him. Why hunt for them when the probability of finding one is so low? I asked.
Two reasons, he responded. His own personal quirkiness and because high-tech is a winner-take-all business, he said, adding that winners have such disproportional success, only rational people would chase Thunder Lizards. Think of a company with a $150 million exit, he explained. A person would have to sell one of these every year for practically a decade to make that equivalent to a billion-dollar exit.
So, how do you spot them? I asked.
"I’m looking for a person who knows so much about an industry that they’re non-consensus and right. I look for an authentic voice," he said. For instance, Evan Williams started Blogger before Twitter, and Erin McKean, who started Wordnik, is an Oxford English lexicographer. Basically, Mike looks for entrepreneurs that have put in their 10,000 hours in a specific industry.
Mike also talks about which entrepreneur surprised him the most on the upside. That person is Osman Rashid, who co-founded Chegg. "His ability to pivot the business models, his passion, his ability to overcome things, and push the boundaries have been very impressive," said Mike.
Watch the interview for more insight from Mike and why he rarely invests in single-person startups, but rather teams that can fill these roles: business vision, business execution, technical vision, and technical execution.
Watch our last interview: How to get funded by Mike Maples
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Smule develops interactive sonic applications for the iPhone and other technology platforms. Smule is developing the new sonic network, connecting users across the globe through expressive audio. Smule's Ocarina, I Am T-Pain, and Leaf Trombone have set the standard for iPhone applications, combining innovative uses of the hardware with compelling social experiences.