Competing To Win

This question came up in the comments yesterday:

It got me thinking about whether a competitive investment is a better investment.

Most of the time we are in a competitive process when we consider an investment.

But that is not always the case.

Sometimes, we are the only investor at the table.

That could be because we got there before anyone else.

Or it could be because nobody else wanted to invest.

We have had big wins in all of these scenarios.

I am not big on social proof. I think it is among the dumbest notions in all of investing.

If you can’t figure out why you want to make an investment on your own, you should not be investing.

But it is true that you have to be able to win competitive situations in order to be a top-tier venture investor.

It may, in fact, be the signature trait of a top-tier venture investor.

When I started out in the VC business, I was with a firm that struggled to win competitive deals.

We did not have a brand, we did not have a strong market position.

So when I left and we started Flatiron, I was all about fixing that.

We did that at Flatiron and we did that at USV.

You have to be able to win the deals you want to win and price is not going to do it all by itself.

The market has a way of getting everyone more or less to a clearing price and then the entrepreneur will make her choice.

And in that moment, you have to have something they want.

It could be your brand.

It could be your passion.

It could be your network.

Most likely it is all those things and more.

So being able to ask in and get in is a very big part of succeeding in the venture business.

#VC & Technology

Comments (Archived):

  1. JimHirshfield

    It pains me that you had to screenshot that comment to include it in your post. Would have loved to see embeddable comments as a feature many years ago. Imagine Twitter without embeds?

    1. fredwilson

      I agree 1000%

    2. Lawrence Brass

      Not much activity at code level. Milking phase?I loved their iOS app… ding! Still works but seems abandoned.

      1. jason wright

        Zeta – “Person-Based Marketing Powered by Artificial Intelligence”.

        1. Lawrence Brass

          That name is taken. I need a cow. 🙂

    3. Mark Gavagan

      It would be a nice feature, especially for mobile users, but I wonder how often it would be used and what the cost of adding it would be in terms of complicating the user experience a bit more.

    4. Mark Gavagan

      I’m curious about whether or not the underlying Disqus comment appears as preview text when a comment’s URL (share > copy link) is used in a post or comment.Let’s see. Here’s the URL for Jim’s comment in this thread:

      1. Lawrence Brass

        Full page reload instead of scrolling to the comment on an iPad, last safari on iOS 11.4.1testing..Jim said 2

  2. William Mougayar

    Agreed, and even true for angel investors. It feels good when the match is there, and they want you because they see the value.

  3. kenberger

    I had an inside seat watching USV compete for, and win, a key investment*, and I can add that the #1 winning element was how human you are.*July 2009, when I helped Dennis with his first funding round for Foursquare.

  4. Pointsandfigures

    Competition is good. Brings out the best in firms, people, process. I know investors that are just tag along investors. Don’t do the work, just want to be in on the deal. When they get in the deal, they don’t work very hard either. But they sure make a loud peanut gallery

  5. awaldstein

    All I can say Fred is that you have earned it.Personally, nothing is more important than personal brand. And nothing carries a longer tail.

  6. PhilipSugar

    I do not dismiss for one second all you have done to build the brand. Team, investment thesis, this blog, reputation for sticking by entrepreneurs, entrepreneur friendly, I could go on.But you left out a big one: Having success. You could do all of that and not have success and be a flash in the pan. Edit: and success was not an accident or luck it was workIt gives you three huge things: Swagger which people feel and tremendously helps you winSocial proof you got money from a proven winnerIf things don’t work out you can be graceful (much easier)Aside: I use the word swagger a lot when talking about sales. I had somebody tell me it was a sexist word….I don’t see it? Some of the people I know with the most swagger are women.

    1. LE

      One thing to note though is that Fred and to a lesser degree USV are vulnerable. And you could say this for any of what is considered the top firms vs. an upstart firm. [1]So the argument is something like: ‘they don’t need your business and won’t work as hard for you as we will’. We need it and we will work harder than they will. (And not in those exact words that won’t work). I mean let’s face it Fred has been around a long time and has his hand in a ton of pots. Multiple boards, multiple legacy entrepreneurs, takes time off etc. Charity work. And so on. He is definitely stretched thin in so many ways and has little time. And while this doesn’t detract from the benefits (of his experience, network and so on) it is absolutely something that (rightly or wrongly) can be used in a sales situation against him. Sure he is still hungry but not only am I (newbie competitor) hungry but I am not as busy and will service your business better and I will be there for you. Saturday night call? I will be there. That is honestly what anyone can do and what I have done (and have suggested to others) and has worked to get the ‘sale’. [2] And I want to make an important point and will bold it: It might not matter (Fred/USV is better) and I could be wrong (Maybe I am full of it) but I in selling we can make it seem that it matters and you will believe me if I present it correctly like FUD. People buy on FUD vs. features and benefits. (That is why they buy 4 wheel drives in part even if they almost never need them. That is why they buy cars that can take the entire family to the airport with luggage even if it’s only 1 time per year).Let’s say with your product SmartButton you are competing for my business against Oracle doing the same thing (they aren’t). Do you want to deal with a ‘tool’ salesman that is spending time at the country club or ‘Phil’? Do you want to have Oracle tell you that they can’t do something because of other decision makers and approvals etc? No I want Phil who is the chief of police (or the sales guy who is one desk over from Phil and has his ear).Had a case last night in a condo board meeting where Comcast wants to do something at our complex. The board President starts to say we should tell Comcast they can only do what they want if they give us the ability to have all owners not have 2 year contracts that lock them in. Yeah that what we will do play hardball with Comcast!!! Sure you moron that will work. You have a huge billion dollar company with 10,000 departments and 20,000 decision makers and the guy in the construction department that we are dealing with will be able to get the legal department and sales department to go along with that request. Sure that will happen.[1] Note that when funding people at the earliest level who haven’t been around the block what I propose is much easier. (Would be less likely to work with someone who has had success).[2] Getting contract for $250k in early 80’s dollars against Xerox Corp with no employees. And without wearing a suit. And to my point a big reason was the people letting the contract were not that experienced (similar to young entrepreneurs) so they bought the argument and the way I presented it. (They were middle aged and naive btw..)

      1. PhilipSugar

        Actually we do compete against Oracle.My point is this: Have you ever dealt with somebody that doesn’t have the money to lose?Holy shit, you get some crazy ass behaviors. I’ve seen people that would call me 20 times worrying about losing $10k. How about we figure out how to make $100k+.

        1. LE

          Oracle bought a company that I have a small account with DYN. They provide dns service for some things we do (and we also charge others for DNS that we provide in a similar fashion and have since the mid 90’s (I actually read the O’Reilly book by Cricket Liu)).The sales rep who works for Oracle has been trying so hard to get me to sign up for ‘enterprise’ dns service and is trying to sell me on that. He doesn’t even know how to qualify a lead. It’s so funny to me. Nothing is more indicative of a bad sales department than having people on staff that aren’t even able to vet leads and spend time on the right prospects.The very first thing I do when someone approaches me is size them up.Even back in the day (80’s) we would get calls from potential customers and I would be dialing in by modem to D&B and running a credit check (we bought the service in bulk) to see who was asking for an estimate (if not obvious like ‘Smith Kline and French’.)Before that in the 70’s my Dad at the gift show would always size up accounts so he didn’t get tied up with the ‘noodniks’. He would give us, his kids, the ‘noodniks’ and we would take their orders.

          1. PhilipSugar

            You are encountering a sales rep that does not have enough leadsI actually emailed this yesterday and since Twain Twain says it is a fine word here it comes:The biggest thing I believe is that everybody says more sales people = more sales.I am going to challenge that assumption. I call it swagger, if you know you are making your number you have swagger, confidence. If you aren’t you are desperate. People sense this. Think of going into a car dealer.I’ll tell a brief story as I’m apt to do. I was sitting next to a VMware (Visualization Software) sales guy. We got to talking during lunch. He said you know I used to have a big enough territory that when a customer said why don’t you come back and give me another demo while I think about it, he would say ok, but it will be two months. Got the sale right then everytime. They added so many people now he says next Tuesday or Thursday? Sales way, way down.

          2. LE

            You are encountering a sales rep that does not have enough leadsWell also someone who has an easy way to follow up ie is using fucking Salesforce or something. I’ve actually had someone tell me that Salesforce has reminded them to follow up. If you aren’t you are desperate. People sense this.Agree that you find that when you’re hot your hot and when your not you’re not. I think in sports Fred (or someone) has called it ‘the hot hand’. Generally also the brain works better when there is some success. That is exactly why I personally think it’s important to mix small sales with larger sales. But no I don’t think that is why that salesman is contacting me either. Just don’t think that is the case here.As far as what the Vmware salesman did exactly right, but that is just a version of putting a time period on an offer and importantly not letting something be open ended. That is exactly how I’ve closed many deals and in particular how I closed the big FB deal. I told them they had 10 (or 7 possibly) days for the reduced price but after that the crazy sellers would raise the price to a point where it might not be buyable. And I presented it (and this is important) in a way that was believable. (To Zuck fyi…) And the merchandise was not worth the price either. I even said that. That they were overpaying. (Same thing I said to get the Xerox deal ‘they are bigger and better’). Most people would have done the opposite. So it was kind of a version of ‘the honest waiter’. Also told them they needed this because there business was shit (was around right after Zuck testified). Who does that type of thing?Most important thing is you can’t learn this from books (like Karate and Flying an airplane). If you do it seems preplaneed and you never works as intended. And it’s not seat of the pants.And you can’t fake confidence or swagger either. Never have seen that work.

          3. PhilipSugar

            Missed the point. He really did two months because he was so busy.But I will agree Salesforce will allow you follow up too much.

          4. LE

            No what you are saying is that he wasn’t manipulating people and I am saying it doesn’t matter. He noticed a reaction based on something that happened. The only mistake (if you want to call it that) is if he didn’t recognize when the territory changed ie ‘They added so many people’ that he continued to allow access to his disadvantage. In that case you think ‘hmm maybe I should try the same thing then’. [1]Noting the result is the ‘seat of the pants’ part that you can’t learn in books or in a classroom.You find plenty of people who do these fake “I am busy” and give you two options when they are available ‘1pm or 2pm the next day’ to try to make scarcity. That to me stands out as pre-planned ‘I read a book’. Maybe it works with some people.[1] Will also say that stories like that are often ‘big fish tales’ a hint of truth but not exactly what is going down. Like I have enough data from you with respect to things you say to know you are consistently a hard ass. If I sat next to you at lunch for the first time I would be suspect that it was a ‘hard ass’ act. (Could still be of course just less likely).

          5. PhilipSugar

            No. I would be soft as a kitten. Look at my last name. Then if I feel it is going wrong the pain train starts and I assure you I am actually crazy. You have seen how I negotiate

          6. sigmaalgebra

            Great psychological insight on buying and selling, reading the personalities and situations on the other side of the table, etc. Glad to get the show and tell on these psychological lessons.But, at times I was successful at buying and selling. Since we are into examples, here goes:(1) For my first new car, and the first car I bought, I investigated, decided exactly what I wanted, took a day off work, and drove the car Dad had loaned me. I had in mind about what I would have to pay, lowered that by a significant amount, went to the closest dealer, saw the salesman I’d talked to before, and made him a flat offer, then and there, for the amount. He didn’t quite laugh, but it was close. Fine with me. So, I drove to about three other dealers, farther away, and did the same.Okay, I was too low — GOOD, I had a “lower bound” which was part of my maybe getting about the best price!!!Back at the first dealer, I raised my offer a small increment and tried again. No deal but no laughs either. So, off to the other three dealers. At one them salesman saw what I was doing, got angry, turned his back, and walked back into the showroom.So I kept iterating. Eventually at an iteration, the salesman at my closest dealer got serious and walked me to the sales manager who accepted the deal after raising it about the price of two McDonald’s Happy Meals, saying that that was his “profit”.So, I was likely within a Happy Meal or two of the lowest possible price. I made good money that day off work. Ah, some of the power of quite accurate mathematical approximation via iteration (right, one of the core technological advantages of my startup).(2) As a grad student, as a part time job I did some applied math and computing for US national security. Our computing bill was too much, and a guy shopped and bought a super-mini computer for not much more than our annual outside bills and for a lot more computing. Also with just a simple text editor, formatting program, and daisy wheel printer we got rid of all the typewriters and did much better on our reports to our customers.So, with that experience, as a B-school prof just on campus, the computing was from a central group headed by the longest sitting CIO in US higher education. He ran a very tight, squeaky clean shop however with poor functionality for the users.E.g., I investigated connecting a serial, asynch, full duplex, XON/XOFF, ASCII daisy wheel printer to a Big Blue EBCDIC line, and my efforts went up to the CIO, at a cocktail party over to my Dean, and then back down to me for my truculent, outrageous, incorrigible, insubordinate, radical transgression. Gee, I just wanted to be able to get some typing done!We had a B-school computing committee that off and on for some years had been studying what to with no reasonable conclusions. At the first B-school faculty meeting that year, I heard the sad committee’s report and stood and, based on my grad school experience, said “Why don’t we get a machine and do it ourselves?”.Soon a dean asked for details, and I did a one person committee computer shopping effort.IBM heard about the shopping and, eventually, tried hard. They sent in two bottom level people to my office trying to impress me, but they left looking down at their shoes wet from their tears. Soon IBM sent in about a dozen from their branch office — I and only 1-2 others from the B-school showed up. They asked”Have you ever been an IBM customer.”In one word,”Yes.””Were you satisfied?””I was NOT.”They quit trying.So they sent in their nationwide, fix-it, sell ice to Eskimos, super-salesman Buck Rodgers. He got a big faculty cocktail party. I showed up but stayed in the background. The next day there was a meeting. The dean had me sit next to him, and Rodgers and I exchanged a few words.Later the dean said that IBM had offered just to donate a machine and asked what I thought. I said that it would need a raised floor, computer room A/C, a full time operator, enough documentation to fill the B-school library, really, with a librarian, would have a super tough time talking to cheap but good enough serial, asynch, full duplex, XON/XOFF, 8-bit ASCII terminals, made inefficient use of processor cycles and disk space, didn’t have capacity enough for us and would need upgrades, and we would have to pay for those — all in an off-hand chat as we walked about 20 feet in the basement hallway.Net the system I proposed was soon installed. The Chair of the computing committee had said “No one can compete with you talking about computing” and later said “The system has done everything you said it would”. Yup.We got a LOT more faculty computing for research, a lot more computing for the MBA program, with again the simple text editor program, text formatter, and daisy wheel printers, got rid of the typewriters and got a LOT more good word whacking, and got a simple system sending fund raising letters to the alumni list, some significant bucks, a system later cloned by the University (non-academic) computer center for the other schools on campus.I was appointed Chair of the B-school computing committee and put on the committee to pick a new CIO for the university. All with no attention at all to the psychological lessons presented here.(3) At a software house in DC working for the Navy, we responded to an RFP for some code to process some data from submarine sea trials. Part of this was to measure ocean wave power spectra and to generate sample paths with the measured power spectra.Quickly I got, from Bell Labs and Princeton, the Blackman and Tukey, The Measurement of Power Spectra, got smart on measuring power spectra, already knew a lot about the fast Fourier transform. I wrote some software to illustrate the issues and show how to measure the power spectra and generate the sample paths.At the end of the week, I called an engineer at the customer, and we met at the computer center. I ran my software and gave him a copy with the output. My software illustrated, with code, how to get what he wanted. At the subsequent competitive RFP show and tell, at the end, I was asked to say a few words. I quickly outlined power spectra, etc., and, quietly, presto, bingo, our software house got “sole source” because my work was the only response that covered the power spectra part of the RFP. Again, success without any of the psychological insight lessons explained in this thread.Lesson: One way to win is to have some solid facts and f’get about the psychological stuff.

          7. JamesHRH

            A long time ago in the car business, the Big Three replied they had over-dealered most markets. With Japanes & German manufacturers established in the market (early 1990’s), the Big Three dealers had the worst customer experience numbers…because everyone who came on the lot was hounded and then treated badly if they left (to go to another Big Three dealer, the sales people assumed).Most of them went to the single Toyota on Honda dealer that was busy but nice to them.

        2. CJ

          I learn so much from the comments here.

    2. Girish Mehta

      The VC business is a very specific case of “having success”. I won’t talk about the obvious point about power law returns.But VC has a lot of runway in the amount of time their “having success” halo lasts.Referring to the duration for which you enjoy the brand uplift of having had a successful fund – you can ride that wave for a while because it is early to measure the results of your next fund.I was in a consumer business operationally where we used to joke that you go “From Prince to Pauper in 90 days”. Many times when we absolutely blew away the target one quarter, and now you are sitting with our heads buried in week 3 of the next quarter wondering what just hit you. (This is in consumer space operationally. Enterprise is different).BTW, the VC case is not generally true of all investing. The halo of success around the hedge fund managers who made it big in the 2008 crash (e.g. John Paulson – “the greatest trade ever”), did not last for more than 2-3 years, because their subsequent under-performance each year was immediately visible to everybody.…When your report card comes up only once in several years, you enjoy that “past success” halo longer. In many ways, that halo helps your future success.

      1. sigmaalgebra

        Yea, but first cut the long interval until a report card should make raising the first fund super tough.But in Fred’s case he had his MIT STEM field degree and at least apprentice background in VC.Then my guess is that when he went to the usual suspects to raise his first fund, he (A) looked really ambitious, smart, and determined, (B) had a relatively good “investment thesis”, understanding that to cover their rear exhaust port the paid staff at the usual suspect limited partners need such coverage, and (C) explained in a way the usual suspect staff could understand: Maybe the scene in the movie The Big Short with Lewis Ranieri from Solomon Brothers selling “Private Label MBS” to the Michigan State Pension Fund is a parody of a good example.For the usual suspects, they (A) didn’t see any super, fantastic qualifications in either technology or business success in many of the VCs they were backing already — e.g., what’s with a former London newspaper guy, a chip salesman from Intel, or some biz dev guy who while in college was lucky enough to meet some successful founder — and (B) Fred’s thesis of search and social sounded relatively good.So, whether Fred could make money or not, he looked relatively promising compared with the rest of the VCs out there, and for the usual suspects, for “alternative investments”, VC was the main opportunity. Besides, sometimes VCs backed home runs, and that could look good to all concerned, especially the staffers at the usual suspect limited partners.As an entrepreneur with a STEM field startup, to me a “thesis” and a dime won’t cover a 10 cent cup of coffee. By analogy it would be like going to NYC because it had a baseball team, but that is a long way short of knowing how to stand at the plate, point to the stands, and hit the next pitch in the direction of the point and over the fences. An entrepreneur is betting, too, and needs reasons much stronger than a “thesis”, needs actually to connect with at least one of only a few pitches so needs some really good reasons.But for VC, the situation is different: (A) The usual suspects won’t get involved with, be able to evaluate, or be influenced by the fine details an entrepreneur needs. (B) For the staff at the usual suspects, a relatively good sounding thesis is a relatively good covering for the rear exhaust port. And (C) a VC with some publicity each year can get some thousands of e-mail contacts from entrepreneurs from which the VC can select from, yes, their “thesis”, easily enough if the thesis is relatively broad, and, also, from various other, more pertinent criteria, e.g. traction, significant and growing rapidly, team, target market, and overall chances of fantastic ROI and a company worth $1+ billion before the end date of the first fund.

    3. Twain Twain

      Swagger is not a sexist word.

    4. CJ

      Aside: I use the word swagger a lot when talking about sales. I had somebody tell me it was a sexist word….I don’t see it? Some of the people I know with the most swagger are women.WTF?!? Seriously. Swagger is the air of success. It’s style, it’s reputation. it’s je ne sais quoi. How does that only apply to men? I know lots of women who personify this. One has to wonder if those people only identify success with men and are therefore projecting those thoughts onto the word.

      1. PhilipSugar

        It was a woman. She asked me to stop using it. That is where things have gotten to politically correct. I agree. It doesn’t mean masculinity it means you have the confidence to say, if you do not want to work with me, you are not worthy of working with me.

        1. CJ

          It’s funny, as a black person, swagger has been a part of our dialect for literally as long as I can remember. And it has never been gender specific. Women use it nearly as often to describe themselves or others as men in our culture.Queen Latifah has swagger for example and will tell you as much. It’s just alien to me that anyone would think the word sexist. I think this woman has a subconscious bias towards believing that only men can embody the qualities that she relates to the word. That’s an individual issue IMO.

          1. PhilipSugar

            Exactly I’d add Oprah, Beyonce and many others. They have swagger.

          2. CJ

            Yep! And the word has probably already been used to describe them by some. /shrug

  7. Omar Ismail

    Can you elaborate on what you do to compete and win over others? It seems like, at the end of the day, what makes you competitive is what you can bring to the entrepreneur. Money is first, but it is by no means as valuable as other things (especially in todays markets).How important are these:1) Your brand value: * Gives a startup credibility. “Backed by top tier VC”. This is a form of social proof: If USV thinks they deserve $$$ and their time, then they must be worth it.* Makes PR easier* Recruitment is easier. People want to join startups that have a higher likelihood of succeeding, and “backed by top-tier VC” aids in that?2) Network* As CEO, you spend a lot of time recruiting. Bringing in top talent.* Introductions to other companies for deals, partnerships, or potential acquisitions.I am sure there are others, but one can list the top 10 VC firms and all of them have the points above, so how do you compete with the crème de la crème of the VC industry?Thanks!

  8. Chimpwithcans

    Juicy post, thanks! I am interested in the infrastructure around you which lets you focus on such strategic stuff as brand, passion and network. The sophistication of your market is a marvel. By contrast Kenya has a ton of money floating around. A lot of it is illicit and corrupt, and there is little strategy on show for where it all goes. NYC for the win.

    1. CJ

      By contrast Kenya has a ton of money floating around. A lot of it is illicit and corrupt, and there is little strategy on show for where it all goes.Certain parts of the US aren’t so different than this.

  9. kirklove

    Digging the staccato formatting and short sentence burst posts. Feels very stream of conscious in a good way.

    1. LE

      Digging the staccato formatting and short sentence burst postsI noticed that pattern as well.

    2. Vasudev Ram

      Fred has his own writing style. I too have been observing it, over the years (long time bar member here, ~10 years, I think). Another trait I’ve seen is that he sometimes writes multiple multi-phrase sentences in a row (all geared towards making the same point), with all of them having the last phrase the same (the punchline). That, and some other points (like some you mentioned), have an impact, IMO. Another one I noticed was that over time he changed somewhat towards using slightly more formal English (some of the time). Interesting stuff.

      1. PhilipSugar

        I think that is how people are now used to reading. I do it myself. See my MBA post, and now

        1. Lawrence Brass

          Yes, blame smartphones and texting. I’ve been trying to infuse some method to a team through one page daily executive summaries by email, asking for comments, etc. Zero replies. I’m the only fool that types real content into trello cards. Everything is conversational now, I need a full reset.BTW, in a meeting yesterday at the airline HQ , save the lady who runs the dev joint, everybody was wearing hoodies and jeans.. I almost looked under the table to check for the sandals. 🙂

        2. Vasudev Ram

          >I think that is how people are now used to reading.Yes. In fact, I’m slowly moving towards doing similarly in my some of my writing. Short paragraphs and blank lines in between them. Not all content is suitable for that format, though.>I do it myself. See my MBA post, and nowI think I had read it at the time, but would like to read it again. Got a link for it?

          1. PhilipSugar

            All you have to do is put Sugar the search bar on AVC

          2. Vasudev Ram

            Oh yes, should have thought of that. Will do. Thanks.

          3. Vasudev Ram

            Found it. Sharing it for anyone else interested in Philip Sugar’s guest post on the MBA Mondays series on :The Management Team – Guest Post From Phil Sugar:…#management #business

    3. jason wright

      voice to text.

  10. JLM

    .Success breeds success.Success hangs out with success.Success casts a shadow into the future.No brand characteristic trumps success.JLMwww.themusingsofthebigredca…

    1. Lawrence Brass

      And good reputation. In Fred’s case personal reputation. Who runs Sequoia? I don’t know. Who will get an exclusive demo of my product? You bet.

    2. CJ

      “No brand characteristic trumps success.”Where I grew up this would be summed up as: “You smell like money.”

  11. Frank W. Miller

    I was hoping after the first sentence that you would give some data about whether this was actually the case. Instead the post changed into one about how you could get yourself into the competitive investments. Are you able to give any characterization about whether the competitive investments you’ve been able to get in have done better as a group than those that were not competitive?

  12. jason wright

    the least interesting thing there should be about a venture capitalist in the capital.

  13. someone

    I would love to see a post about the fallacy of social proof

    1. LE

      Fred says:I am not big on social proof. I think it is among the dumbest notions in all of investing.However as an irony one of the reasons he gets deals in part is social proof.

  14. CJ

    “If you can’t figure out why you want to make an investment on your own, you should not be investing.”#droppingknowledge