Is this idea big enough? • Tech Crunch

Perhaps one could argue with that Fudgegate, a seed-stage-based venture company in the Gulf region, is pushing its own weight. The roughly 15-year-old company has about $500 million in assets under management — including a $150 million fund that quietly closed in January — and it makes only a handful of new investments each year. But with investments in Okta, Lyft and Starkware, which are rated 8 billion dollars In May, among others, Her focused approach appears to be paying off.

Writing a few checks, especially in a booming market, can be frustrating for some investors. But over the years, Fudgegate has forced small team To sort through several thousand presentations and decide which ones you think have the most potential. Now, co-founder Ann Miura-Ko and Tyler Whittle, a senior associate at the company, have developed a new program to similarly help student teams develop an understanding of what big ideas look like — and why most concepts aren’t big ideas.

Call reactorThe program combines the curriculum from the classes taught by Miura Ko at the Stanford School of Engineering and consists of two components – a pre-summer lecture series and a summer accelerator. In fact, last summer, 10 teams showed up at Floodgate offices for 10 weeks to build and test startups, and in some cases, scrap everything.

To get more details about the program — as well as to hear Miura-Ko’s current perspective on the startup scene now in the seed stage — we spoke with her earlier this week. Our conversation has been edited to length.

TC: This summer, I invited a lot of students to work on startup ideas with you here in the Bay Area. Were you incubating companies together? How does it all work?

AM: We went to a builders community we set up the year before and to [Stanford’s] College of Engineering [where I teach], and to the computer science department at a number of universities and we said, “Hey, if you’re interested in being a future founder, and you’re a great builder, we’d be interested in talking to you.” The main message there was: “You don’t need to actually have an idea to work on. We just want you to be an incredible builder with an incredible amount of curiosity. Partially, [that’s because] You should be able to build a product fast and actually get rid of it [sometimes] But you also have to be curious about the history of the industry in which you work. .

The goal is to help them identify the big ideas. What is your definition of a big idea and how do you know when to see it?

I realized that there are two types of business that can get really big. The first is: You have an idea, and most people already understand that idea already, but you’re better operationally, so you implement everyone else. What I’ve come to realize is that as a seed investor, we don’t really have the advantage of investing in those companies because we don’t see enough processes to see who’s the best at running this kind of startup. So when the founders hear,[You] Need more traction before we make a decision, “That’s probably because you’re running a business that focuses more on operations, versus the second type, which I think focuses on insights.

The work led by the Insights is about identifying what we call the inflection point, which has some components. First, there is some kind of change event that has taken place. It could be technical – CRISPR was invented – or an organizational change occurred, such as telemedicine across state lines, or it could be social. The most common thing people are now referring to is just working from home.

A change event makes a new feature possible, makes it possible to build a product cheaper or faster, or you can also have a completely different business model made possible. [For example] You license it in exchange for having to pay for it on a monthly basis, or vice versa. Or radically change the business system.

When that happens, if you can hook it [that inflection point and change event to]“This will therefore create core traction and adoption for my products in the next two to three years,” and now you have an idea of ​​the need for core investors to be [funding]. [And] This is the kind of thing we’re really looking for our students to really discover.

Do you fund these students?

yes. We write checks for $50,000 at all businesses, and then a bunch of them will eventually say, “We’re not going to do this anymore” in which case the store shuts down. [But] We had two companies [going concerns] With an investment from us, and then an investment that may actually take an additional investment and another [already] Took an outside investment. So we have four companies going on out of 10.

How much stake does $50,000 buy you?

We’re still reviewing that for next year, so I don’t want to put a pin on what we’re going to do. But it is a safe note. Then in terms of post financing, it ranges in terms of what a person needs and also [it’s tied to] when We invest in that company, so it ranges in valuation as well.

Four out of 10 infection rate is very good. Were these students primarily from Stanford University?

What’s really cool about that is that we’ve had students from Stanford, but we’ve had students from the University of Texas, with other students from Yale and Penn and the University of Texas, so it’s really spilled over to different universities. . . And we’re really excited about trying to expand to as many universities as possible. One of the interesting pieces we learned is that Stanford students are very well educated when it comes to startups. The beauty of having Stanford students in this network was that Stanford students pulled other students into the networks that Stanford students are lucky to have.

I remember talking to a 19-year-old student at Stanford, probably 10 years ago now, who said that he felt pressured to become a founder because of the culture in the school. is it important to you?

yes. That’s why I designed it carefully so you have a way out. I think it’s very important to realize that not everyone is supposed to be a founder. And in fact, in the relationships I have with my students, I will tell certain students that I know really well, “You have amazing and very unique skill sets that not many people have, so you should go to a big company; you’re going to make a huge impact there. Live so they don’t become founders [because] It is a specific desire or [requires] This specific skill was set at a certain moment in my personal view, it shouldn’t be available to everyone.

I agree with you. I think there is a fairly big push for technical people [and] For people who have good ideas to go in that direction. But my hope is that by giving them that kind of view, they can tell if there is a founder inside them.

Out of curiosity, does Floodgate use Scouting?

We don’t have a scout program. I think our network of friends, family, and founders are technically our scouts. But we don’t have a financial program as many people do. I have this kind of network of “non-partners” that I meet on a regular basis – these are angel investors and small fund investors – and what we’re doing is we’re going to share literally three or four interesting companies that we’ve been researching in the past two weeks. And then we share with each other how we strive for it. And if other people are interested in looking at the company, we invite them to it.

Somewhat closely related, Y Combinator has just concluded its last test day. As a core investor, do you follow YC closely? What do you think of the organization as it exists today?

I think they provide a tremendous service to the founders, and I think people who want to get to know them get it [it]. I have a lot of respect for the product they provide, the community they provide, and the way the fundraising is as a result.

For me, it’s just a harder platform to deal with. If I’m only making two to five investments a year, I’ll be asked to put a check in with a rolling SAFE note that if I sign tonight, you know, that’s one appraisal and if I sign tomorrow, it’s at another, and [the founders] They don’t really know me, but they’re willing to sign up with me – like, none of that sounds quite right. So the people I’ve been dealing with are actually founders I know even before they joined YC.

But I see why the founders like it and I think there’s a tremendous amount of work they put into the product and I’m not going to rely on YC. I know that every year, some people say the classes are too big and everything is too watered down and too expensive. But you know that in every combination, there will be one or two wild strokes.

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