What the World's Top Investors Look For

Johan Brenner, Miles Grimshaw, Keith Rabois

Earlier this month, we celebrated the 20 year anniversary of Creandum, a moment to celebrate with our LPs, portfolio founders, team and friends we have made along the way. As part of our celebrations, we hosted ‘Creandum Sessions’, a suite of panel discussions with leading lights in the industry.

For the final session of the day, Johan sat down with two of the world’s most accomplished venture investors, Benchmark’s Miles Grimshaw and Keith Rabois of Founders Fund.

Keith and Miles talked openly and frankly about the life of a VC, what they look for in founders and colleagues, the future of the sector and the investments that got away.

Here are some of the best bits.

In search of extraordinary founders

What makes an investor’s ‘ears perk up’? For both Miles and Keith, it’s not about ‘modeling’ or ‘business plans’, it’s something more transcendental. ‘In 23 years,’ said Keith, ‘every good call I've ever made, I’ve known in three minutes or less. There's a spark and you just know you've met somebody that’s going to change the world.’

For Miles, that extraordinariness needs to be backed up by ‘voracious learning,’ and he reflected on how, during a recent pitch the founder was caught out by an acronym…. Rather than seeing this as a flaw, ‘all of us were amazed that he was willing to ask that room. That willingness, to Miles, shows a founder is authentic, a value that’s vital to make the long-term commitment required to build a successful startup.

In a piece originally for TechCrunch in 2021, Johan explored the fundamental characteristics of the unicorn entrepreneurs Creandum has backed. One of these was having a 'helicopter' ability of moving seamlessly from strategy, to detail and back.

‘The only real question for us,’ explained Keith, is ‘is this an extraordinary founder? [...] Nothing else matters if they are.’

Keith Rabois, GP @ Founders Fund

The founder - investor relationship

Keith strongly believes in backing his companies, explaining how it’s an investor’s job to fight their corner. “People used to criticize DoorDash left and right. This company's never going to be profitable, Uber is going to beat them. I was able to defend DoorDash, which really helped. If you have us on our side, we're not going to back down.”

For Miles and Benchmark, that commitment to founders comes from being an ‘enduring partner’. Citing the productivity tool Docker as an example, he explained how his partner at Benchmark, Peter Fenton, stuck with the company through two failed product launches before it eventually landed on the hugely successful platform we know today. Art, afterall, takes time.

‘We really think of the entrepreneurs as authors of stories, as constantly writing a sort of poetry through product and through the intersection of the business model.’

Miles Grimshaw, GP @ Benchmark

Look for magnetic hires and dissenting voices

When it comes to hiring, companies grow by hiring ‘barrels’, said Keith, ‘not ammunition. Barrels are basically people who can take everybody with them.’ Ammunition… on the other hand… [is] no use without a barrel to shoot from.’

But how do you spot a barrel? Find the person who keeps getting hassled at their desk… ‘by definition, you walk over to someone's desk when someone can help you.’

One of the hardest hires for a founder… is a dissenting voice. But that’s a rare thing, said both investors, especially at board level. ‘The people who report to me aren't usually going to tell me when I'm wrong,’ said Keith, ‘...having a board member who will tell you, when you're probably making a mistake, is really, really valuable.’

The reverse is also true, he said. ‘There are times when you get conservative as a CEO, or cautious or self-critical. And sometimes a cheerleader will say “actually, this is better than you think.” That can be even more valuable sometimes.’

But many times founders won’t listen or you can’t make the case strong enough, added Miles, “you were right” is the worst thing to hear as a board member, because you tried to tell them and you failed.’

The current status of the VC industry

The last few years, though challenging, said Keith, are really just a reset. A return to normal. ‘If you look at the arc of technology and the history of venture capital, we're in the middle of the averages on almost any metric,’ he explained. It’s just that 2018-2021 were such outliers that this feels like a downturn. The challenge he has found is that many entrepreneurs’ valuation expectations haven’t yet aligned with this reset. ‘We don't want to get into a fight about valuations every day.’

The reset, added Miles, ‘will be better for founders’ in the long run. ‘The general mindset,’ he said, ‘was everything works [...] which means everything gets funded.’ With funding drying up, this could see resources get better allocated and ‘greatness is amplified’.

In terms of what the future looks like, there’s few hotter topics than AI. Keith, however, isn’t interested. Not for now at least. ‘There may be massive societal impact,’ he admitted, but ‘there’s no venture returns in it.’ Its value, from a venture point at least, is how it will improve potential portfolio companies in other sectors. ‘Every founder should be using AI in their company to transform the product or business model. And I would fund a company that's using AI just like I would fund a company that's using Flash.’

Miles tended to agree, seeing profit in its ability to enhance existing software – ‘it’s ‘changing the whole user experience of a product’. Regardless, for new founders and investors, AI can’t be ignored. ‘You’ve got to find the next thing and try and make it work as best as possible.’ Or, to put it more bluntly: ‘you don’t have a choice.’