Niko Bonatsos is one of the most successful venture capitalists in Silicon Valley. A cursory glance of his LinkedIn profile suggests he’s maybe not what you would expect from a typical investor. Why? He loves working with first time founders, as opposed to those with an extensive track record, and frankly he doesn’t care whether you went to a school like Stanford or not.
It is fair to say that he has a gift for identifying the next big thing. His contrarian investment philosophy and love for investing in “annoying and controversial” apps led him to YikYak’s Brooks Buffington and Snapchat’s Evan Spiegel, at a time when others might have dismissed their respective apps as fads.
It is hard to argue with his approach. In chatting with Niko, you get the feeling that he also cares about the founders he works with. It is not just about making money. He has been in their shoes. He empathizes with their struggles.
Niko was kind enough to chat with us, at CampusKudos, about his own startup failure, what made him invest in YikYak and much more.
You can listen to the whole convo here.
Below are some highlights of our conversation, edited and paraphrased for brevity and clarity.
Can you tell us about your first startup myLinkPower? Why didn’t it work out? What would you have done differently with your first startup?
At the time, we thought we were taking on a once-in-a-lifetime opportunity to be one of the first teams to build on top of the LinkedIn platform when LinkedIn released its API back in late 2009.
Our goal was to build a network for the power users on LinkedIn — to help them connect more easily.
It did not work out. It was a huge failure. The reason why it didn’t work out was twofold.
- Building on top of someone else’s platform was a huge mistake. The platform risk was devastating. The rules to use LinkedIn’s data were very rigid. Today, LinkedIn has almost entirely shut off access to its data for other developers.
- We had a culture problem. We hired two types of people — people who worked their butts off and others who worked forty hour weeks. In the early stages, you cannot have the latter. The 9-to-5ers need to be managed, and the people who work all day do not have time to manage them. This can be demoralizing.
You mention you love working with first-time founders. I’m used to hearing that VCs prefer working with founders with a track record. Can you tell us why?
I love working with first time founders for a number of reasons.
They don’t have any legacy or baggage. This is especially important in the consumer space since it is hard to predict what the next big thing will be. Prior experiences and bad habits can dramatically slow you down. Often times, you might lack the creativity, imagination and free spirit to imagine the “new new.” You must experiment like crazy until you stumble upon it.
I love working with first time founders who are learning animals and will become domain experts in just a few years. They are passionate about succeeding in their own way and solving a specific problem. I enjoy this and try my best to work with these types of young founders.
I read that you love investing in early products that upon launch are perceived as stupid, funny, controversial and maybe even annoying. Those are not words one would expect to read. Could you elaborate on what you mean?
In the consumer products space, it is really hard to create awareness for a new product. If you have to create awareness on your own, it can be very expensive. If you are a first time founder, you might lack resources and people who will pay attention to you. As a result, it can be really helpful if you have a product that others perceive as controversial.
If it is controversial, they will start talking about it. If they start talking about it to their friends, the press will hear about it. If the press hears about it, they will write a story. If it is really controversial, there will be more headlines. More headlines leads to more users. With more users, the product will become less controversial as more mainstream use-cases emerge.
With all this, a company has a good shot to raise capital and have access to resources to drive even further adoption.
That’s a great segue to your personal investment into YikYak. How’d you connect with Brooks Buffington at YikYak?
I met the YikYak team in their very early days, when there were only tens of thousands of users. I discovered the app just by searching through the app store. I came across YikYak and decided to cold email Brooks, one of their founders.
Niko’s first email to Brooks at YikYak
When we started talking, what really impressed me was that Brooks was cracking jokes the first time we ever chatted. He was not stressed out or nervous at all. He was very authentic, and he shared insights and metrics that were very impressive.
So, I flew Brooks and Tyler out to California to meet with me. When we met, the app had traction at a few high schools and a handful of college campuses.
There were three things that really struck me.
- I loved a couple of Tyler’s insights. Tyler asserted that, in the history of social media, the same people create the majority of content, which gets all the “likes.” Everyone wants to be like those individuals, and, if you are not one of them, you feel embarrassed to share and create content. With YikYak, everyone is treated as an equal from day one. This is true since every user is anonymous.
- The intensity of engagement from college kids was super impressive. College students were spending numerous hours each week with the product. Students were literally requesting for size of the feed to increase, so they wouldn’t have to stay up late at night scrolling as much to catch up with each post.
- Brooks and Tyler were genuine and good guys. They were very serious about stopping incidents of bad behavior.
Despite the fact that high school students account for 80–90% of YikYak’s growth, Brooks and Tyler decided to essentially ban all their high school users. College students were apparently more mature about how to use the product.
This was a very bold move.
Today, YikYak is a household name among college students in America. It is how college students find out what is happening around them on campus. It is a go-to information source.
How do you determine which apps are BS or the next big consumer product like Snapchat? What did the General Catalyst team see in Snapchat when others might have thought it was a fad?
It is a combination of a few factors.
First, if the product has launched, we will look deeply into the metrics. Is there something that is ten times better than anything we’ve seen in the market before? We will also spend a lot more time with that particular product and company.
Second, we assess if the product is differentiated. We view this not from the lens of a VC, since we tend to be early adopters who see hundred of products each week, but rather from the perspective of a typical consumer. The best way to tell, if something is differentiated, is by word-of-mouth. What words do people use to describe the company or product? Do they get excited? Emotionally engaged? These are signals that there is product differentiation.
Third, we look for special founders. While Evan from Snapchat could not foresee the Selfie revolution, he laid out an impressive vision of building the fastest camera app out there. He wanted to build a more humanized communication platform. With a snap, you could communicate your location and your feelings, all at once. In addition, after ten seconds, it disappeared just like how we typically communicate. This was unlike everything else in social media, where things left a trail and continued to exist.
You mention on your LinkedIn, “Talent is universal, but opportunity is not.” How do we make opportunity universal?
In the Internet era, access to knowledge is easier than it has ever been. Anyone with an internet connection can have access to all of humanity’s knowledge.
For me, I’m constantly looking to find the next big thing, and I believe it probably will not come out of Silicon Valley. As a result, I’m always looking through the app store and reading a lot of different articles. I personally have around ten Skype convos each week with people from around the world.
If you are somebody who is really excited about working on something and you do a little bit of content creation or have an online presence, opportunities will come your way.