Venture Capitalists at Work: How VCs Identify and Build Billion-Dollar Successes

Shah: Where does that product-market fit show up in a short period of time? Zachary: In consumer internet, it is user engagement.

It certainly helps if you have all the right viral features built in, but it is particularly interesting when the product itself is not very good or is not very viral … and people are still talking about it.

An interesting exercise is to walk into a company and ask three people what is the purpose of the company. If you get the same answer from all three, it tells you that the CEO is doing their job.

Second, we launched quickly and iterated.

Also, asking the obvious stupid questions is effective. Getting everyone together and asking really stupid questions works surprisingly well. Trying to be the really smart guy in the room usually fails.

Does a better go-to-market strategy win over better product? Morgan: Yes, the better go-to-market strategy wins over the better product.

A real VC, a real VC firm, is structured as a service provider to the entrepreneur for the purpose of helping them build their business. There is nothing passive about it, and it is no surprise that private equity firms have had such a hard time going downstream to venture investing.

Go see your customers. Go early on. Have really tight engagement with your customers early on and listen to them. If they say this is interesting, but I want that instead, you have to move in that direction. It is really letting the market drive what you offer versus you coming up with great inventions for the customer.

And they’ll ask me, “Well, how do your companies solve this? What do you see?” And when they’re asking me, or if they say to me, “Hey, you know, I saw that in your portfolio you’re an investor in Nominum, and you’re an investor in Reputation. I really want to meet those guys because I have an idea that I think we can work with each other.” People w