Transcript: How Product-First VC Mighty Capital is Picking great companies?

Host: AC, welcome to the startup project show.

Guest: Thanks for having me. Glad to be here.

Host: Uh, so you have you know really interesting diverse set of experiences. Uh, you know, you have an overlap from academia, you know, you did your own startup, you're also doing investing.

Uh, so I think it's really, you know, very few people have these interesting vantage points where, you know, you come at different directions.

And I thought it would be great to have you and talk about, you know, product development, venture capital and your experiences. Um, and hopefully deliver some value for our our listeners.

Um, to just get started, um, can you give a little bit background, you know, uh, what have you done till now in your career for our audience?

Guest: Yeah, yeah, happy to do that. So, I was uh, born and raised in, in Paris, in France. And I studied electrical engineering there at like the, the MIT of France if you want.

And then, uh, right after that moved to the Bay area to get my MBA at Stanford, and spent the first decade of my career as a entrepreneur/product manager.

So entrepreneur for my own company CEO, and then product manager worked for Meta, Nokia, electronic cards.

And I made a name for myself during the mobile era where I built products that won a number of prestigious awards like an Emmy nomination, Wall Street Journal Innovation Award, and um, are used today by literally billions of people.

Um, as a result of that, I was invited to write a book on what makes a great product, like a great digital product, which uh, which you can see here on the video if you're watching, it's right there.

Um, the book is what started uh, one of the key um, priorities in my life for the past decade, which is uh, this uh, organization called Products that Count that I started initially because you know, when I was writing this book, it was clear that product managers needed a place to learn from one another, to share best practices, and they didn't have that.

And so it started as a community, and I incorporated it as a non for profit because I wanted us to focus on the three key questions that all PMs want to be answering which is, what makes a great product?

What makes a great product manager, what makes a great product leader? as opposed to be thinking about how to build a business around it. Um, I just wanted us to focus on the product conversation.

So that, that's been a, a key important element in my life, um, for the past decade. I've been also you mentioned academia, I've been teaching product at the Columbia University Executive MBA.

And then in parallel to that, when I was at Meta, after selling my last company, I started to do angel investments and did that with uh, with some great successes.

I was very fortunate early on in my investing career before I lost too much money to meet with incredible investors who taught me a lot about what makes a great company and a great investment and how to, you know, um, and make money from investing, which is sort of the definition.

And as I was doing more of it, I started to do some SPVs with my, my partners and um, the growth of products that count that product community was feeding me a lot of incredible uh, investment opportunity.

And so, I became more and more involved in the world of investing.

I uh, briefly joined venture capital firm, one of the traditional, you know, silicon valley dinosaurs and when I saw how they operate, um, I immediately realized that I was going to be way better off doing it myself, applying a product mindset to the venture capital industry.

And that's what led to the creation of Mighty Capital six years ago. We've raised three funds. We are just starting to deploy our third fund. Uh, we invest at the Series A stage in uh B2B tech.

And we've made some incredible uh, investments in Amplitude, which uh, most PMs will know, went public on Nasdaq a couple years ago. We are also investors in Grock, which has all the rage today with AI.

Uh, we're investors in Airbnb, although we don't do too much consumer stuff anymore.

Uh, Digital Ocean and a few other great companies and you know, what's been really exciting is to see how applying this product first strategy is literally defying the traditional VC paradigm where you make the assumption that only one in 20 or so of your investments or maybe now one in 30 is going to be a hit and everything else is going to go to zero.

And our hit rate is one in five, you know?

One in five of our investments in the outlier and that's because, uh, we have, you know, an approach that's different and that works better for entrepreneurs and creates very aligned partnership with entrepreneurs.

Host: And all these companies that you mentioned and are all these investments uh, from Mighty Capital, the fund that you're running or are these angel investments?

Guest: Uh, Mighty Capital investments. Yes, I uh, my Angel investments are from before, I wouldn't mention that in the context of Mighty Capital.

Host: Got it. Um, so talk to me a little bit about, you know, how are you making that decisions? Because uh, everyone has sort of like their own frame of decision making especially in early stage and when you say like product first, uh, you know, identifying product first companies, like what does it actually mean in practice?

Guest: Yeah. Yeah, I think that's a really good question. You know, it's like how do we pick um, better than the traditional firms?

Um, so when you think about, you know, Products that count today, uh, it's a massive global platform for innovation insights.

It's trusted by organizations like uh, Johnson and Johnson and Walmart and Cisco, Cap Gemini and of course, it's also trusted by Mighty Capital.

And so we constantly get signals from, you know, those PMs across the world, across industry, uh, of, you know, what's exciting? What's the next big thing, what's on their roadmap? What's the priority for them?

And from there we are able to, you know, produce every quarter or so like innovation insights. Uh, so that allowed us to be really early in product like growth, uh, with in Amplitude or in generative AI with with Grock, right?

We didn't invest in Grock in the last two years, or in any generative AI in the last two years since the Open AI hype. Uh, but we have some great picks in that from, from before, right before it becomes a hype.

Um, and so that's how we, you know, we see trends before uh, they become hypes.

Host: Um, so are you saying does Mighty Capital operate like a traditional firm where you're making 30 or 35 investments per fund or uh, are you operating in a different model?

Guest: Oh, so we're a traditional venture capital fund, but in each of our funds, we only make about 15 to 17 investments because we, you know, we don't need to make 30 like a traditional firm would to maybe possibly have one winner. We make 15 to 17 and we get at least three winners. And so it works really well for our own investors.

Host: Um, so moving on, uh, I think you're also teaching at Stanford on, you know, about startups, right? And talk a little bit about, you know, what do you teach and what is that experience be like?

Guest: Yes. Yeah, for sure. So when I started investing, um, I made some mistakes like everyone. And then I met great partners who, who helped me figure out like investing.

Host: What are some of the mistakes?

Guest: Um, I mean, you name it, you know, it's really easy to make mistakes when you think like an operator and you're trying to act like an investor. Pretty much every single instinct you have is wrong.

Um, so, um, the, the reason I got to teaching is as I was learning how to invest, I was also looking for more great co-investors. And you know, my philosophy is the best way to master something is to teach it.

And so, um, I got the opportunity to teach at the executive program at Stanford, which means that once a year, I was, you know, in a classroom with 30 other incredible accomplished folks, really senior.

Some had exceptional operational experience and were kind of like me trying to figure out investing. Some were corporate investors and were trying to understand how to benefit their corporations or the strategy of their corporation.

Uh, some were public market investors and were also trying to figure out like what happens in the private market and we all kind of, you know, basically learned from one another. I would also bring a ton of great speakers.

And then, um, so that that really helped me build a phenomenal network of investors who brought me additional deals. In addition to that, as I got better at investing, I started to be invited to be on the board of some of my companies.

And you know, I I learned that most uh, board members are quite ineffective at being, you at governance.

And so I started to teach governance at uh Stanford again at the executive program, which means that, you know, once a year for, for a few weeks, I also got to be with another 20 to 30 incredible executives and you know, accomplished board members for the most part to kind of brush up and uh sharpen our skills in being very effective board members.

Host: what what does it take to be an effective board member when you're investing at a uh series A stage?

Guest: Right. So you you essentially, you know, as a board member, you essentially have two levers, right? You have money and you have people. And so you need to, you know, uh, make sure that you look after the interest of the shareholders.

That's sort of the definition, right? uh using the two levers, right? One is money, one is people. And so at the right time, you have to use one and and the other without, of course being in the driver's seat and without being a backseat driver.

Um, so that comes with uh, you know, a lot of tools and techniques. What, you know, I I would actually encourage your audience to uh, sign up for this course. Uh, it's now offered online.

It's uh, it's taught by one of my partners who um, is excellent um, at governance. Uh, simply because as you know, I I did that for six, seven years.

And now as your Mighty Capital is scaling and um, traveling a lot, it's actually really hard for me to uh, to be teaching. So um, it stays in the firm and I I encourage you to sign up for it. It's offered generally in the winter quarter at Stanford.

Host: Um, so one of the sort of commentary around startups and boards has been that the boards don't have full control because of dual class shareholder and they can't really have, you know, real implication on what the founder is doing. Like this, uh, do you believe in that or do you see uh that changing or is that just, you know, uh and not the right way on how things actually happen?

Guest: Right. It's really funny that you mentioned that. It's a, it's a problem that, you know, a lot of public market investors will, will raise about like Silicon Valley companies.

It's sort of like a New York versus Silicon Valley, you know, micro debate.

The truth is, if it comes to that, you've already lost the battle, because if you need to enforce your control rights or your voting right as a board member to get stuff done, you're really ineffective board member.

Uh, there are way more effective ways to work and engage with the founder or CEO that will get into much better results than trying to enforce, you know, power and control.

Host: Uh, you you also mentioned, you know, public and private investors. Your students come, you know, with a lot of exposure in terms of public uh, investing. Um, what is your take on? Because there isn't much data when you do early stage investing. Uh, how much focus is there on looking at data when you're doing you know, early stage investments?

Guest: Yeah.

So that's exactly what the there's a small portion of the, you know, the executives who are like former traders or hedge funds folks and what typically they think is, oh, I'm going to come into private markets, which is an untapped opportunity.

Um, and I'm going to, you know, uh, get all the data I need and therefore I'll I'll I'll perform private markets, which private market already by far outperform public markets.

Anyway, so very quickly, um, they realize that you can't, um, you can't use a data driven approach with early stage investing. You have to use a mix of looking at data, looking at people, uh, looking at like having intuition about innovation trends.

It's, you know, the one asset class in finance that requires a lot of experience because it's both an art and a science, not just a science.

Host: So, um, just to uh, follow follow up on that, are there any specific things that you as an investor sort of focus on more or like for example, in my case when I do pre-seed investing, for me, like the one important factor that I sort of focus on because we invest in SASS, can one of the founders really write great code or like execute faster in terms of writing code.

Like that is one point I definitely want to have in my startup. Um, that after years like of, you know, what it what does, you know, great pre-seed actually look like, I've sort of figured out that the only thing that really matters for me is this.

If this doesn't work, I'll not look at anything else. So, do you have certain criteria or uh, things that you sort of uh in through intuition or over experience sort of have these one or two things that you focus on?

Guest: let me start again. It it's very interesting that you use uh, speed of writing code as one of your criteria. Uh, when we invest, the the company typically has about a million dollars in revenue.

And so it has a team that's, you know, anywhere between five and 15 people. It has uh, customers, usually five to 10. Uh, and so we actually are able to look at it as a, as a company.

And when we do due diligence, we actually publish that on our website, uh, we look at three key criteria. The first one is the team. Uh, we want a high performing team. We want a well functioning board, a coachable CEO. Uh, we do references.

Uh, then we look at traction. So we want revenue, revenue growth, we look at revenue composition, we do customer references, we look at the market, the roadmap. And then the terms.

We are, you know, going to be in a partnership with entrepreneurs for many years and so we want the relationship to be based on fair terms. Um, and so once we check all that, then uh, we actually look at the fit with Mighty Capital.

And that's really uh important because we, we win 80% of the deals we want to get into, which is a really high win rate. Um, we won deals against, you know, SoftBank when it was difficult to do that.

We have co-invested with Mayfield and Benchmark and a number of other big firms. And the we're able even though we're a young brand to do that, because we make sure that we invest when there's a real fit with Mighty Capital.

So when, you know, 500,000 product managers can be valuable to the company that the CEO is building.

Host: That's amazing.

I mean, I've faced this uh, you know, when we are trying to get into a pre-seed round and some large investor coming and taking a entire round that's sort of like a very common scenario that we encountered and I think 80% is pretty high, especially when you're co-investing with such large brands.

Um, I want to get back to this, uh, you know, notion of uh, you know, what makes a great product? I know you've written a book on it and uh, what makes a great?

So I I want to split this into two parts, like what makes a great product and then what makes a great product manager?

Guest: Mhm. Yeah, well, let's start with what makes a great product. Um, so the book that I wrote was uh, you know, essentially right, the key of uh, the key message of the book is technology is an extension of ourselves.

And so when we think what makes a great product, we have to think about what makes a great person? And um, I use the mind body spirit framework to describe that. So, you know, mind, we all like to learn. Uh, that's why people listen to your podcast.

And so we expect that our technology will, will also learn and will solve really complex problems. Uh, body, we, we all want to look good. Um, and we expect that our technology will also be beautiful and you know, that is not just pretty pictures.

It's about efficiency, it's about a wow factor. Um, and then we also all, you know, want to have like a spiritual life, right? a meaningful life. And so we expect that our product, our technology will give us meaning.

Meaning they will be personalized and at the same time they will protect our privacy. And so that's kind of how I think about great products. And you know, that's sort of philosophical.

Uh, but then when you apply that to AI, for example, which is what, you know, so many product managers are working on right now, you can look at, you know, kind of what's table stakes versus what's left to solve.

So mind, right? the first one, uh, that's been solved a long time ago. In fact, you know, IBM Watson, which we think of very much as like a machine, right? a robot.

Uh, just because IBM, right, International Business Machines, but it it is not something that we think of as delightful, right? It is something that is like a, a tool to solve problems that has never been solved before.

And that was like 13 or 15 years ago. Now, the the body part, right? beauty, that that's sort of where we are today with Chad GPT, right?

The interaction with Chad GPT feels very delightful, it feels almost human until you realize that it's not a human who's talking to you even though they are talking like a human. There's no personalization.

And so Chad GPT sort of nailed that beauty aspect. And what has yet to be invented is AI that's actually personalized, that's like much closer to a human because it talks like a human, but it also says human things.

And that I think is, you know, the work that any product manager or entrepreneur of the next one or two decades are going to be doing.

I I will say, all the companies that we're seeing in AI right now, a very large majority is focused on relatively small problems. And I think it's because of what you were talking about earlier when you say speed of coding is a success criteria.

And so if if speed and I agree with you, speed is definitely a success criteria in this market. So it means that serial entrepreneurs, for example, have a massive competitive advantage over first time entrepreneurs.

Same with experienced PMs have a massive competitive advantage. But when you, when speed is at the essence, then you tend to want to solve problems that can be solved quickly and so by nature they are relatively small problems.

And so you see a lot of sort of efficiency plays that, you know, will essentially no longer be relevant features or businesses in the next three to six months because of just, you know, Microsoft, Open AI or Mistral or perplexity or whatever, will will release a feature.

Instead, you know, what I would encourage entrepreneurs and PMs to think about is, what is a problem that's super big that only AI can solve? And, you know, there are at least three. Uh, the first one I think is uh, drug discovery.

It's a problem that's way more complex than the human mind. Too many variables, but it can be solved with AI very effectively. I'd love to see entrepreneurs tackle that. I see a few, but I think there could be room for many more.

Another is um, electric vehicle or self-driving cars. Same thing, right? so many variables in such a complex environment. AI can solve that way better than humans. And so it, it's a big problem to solve by AI exclusively.

And then the third one, um, is is loneliness.

And when you think about loneliness, like I don't mean just dating, I mean like aging people who want a companion, uh, think of like the movie her, um, you know, where AI can help especially post pandemic where so many people work from home and are isolated, really help provide like personalized companionship and and your mental health uh solutions.

And so I I I would love to see more uh AI companies created to to solve these big problems.

Host: I definitely agree on the fact that like, I think one of the best ways to even start a startup is come with a big idea than a small idea.

Guest: Exactly.

Host: Like take a big idea, but create a smaller approach to that big idea.

And a lot of entrepreneurs sort of misunderstand that and they really pick a niche category thinking that it will blow up into a big category, but eventually they realize that, you know, fundraising will become hard because there's no bigger story to tell and there's no bigger opportunity uh to find as well.

But one one more question I wanted to ask you is, you know, if someone is starting out to become a product manager, what are the sort of like meta skills that you sort of tend they should focus on to become a better product manager or, you know, to become a better product builder.

Uh, what are a couple of skills that you know, they should pursue?

Guest: Yeah. You know, it's um, a bit of a million dollar question. I'll tell you why.

Uh, every year for the past seven years, a committee in our advisory board at Products that count is um, selected all product executives to, to define exactly that.

What are the core superpower, core competencies that a great product manager needs to have?

And in, and in great PM fashion, every single year, the advisory board committee comes up with a completely new set of skills because product is evolving just at the speed of light, right?

And so the answer to that I would say is really um, you know, if you join Products that count, it's completely free. Everything uh about it is free because it's a non for profit.

Uh, join Products that count and follow our awards, follow our newsletter, our podcast. That's where you'll kind of be part of the product conversation and you'll see the competencies evolving.

And I can give you an example, like a few years ago, a lot of the conversation was about how do I effectively engage my engineers or how do I keep my sales under control without, you know, and I want them to randomize me all the time.

Well, these conversations are no longer happening or maybe uh at a completely different magnitude because now half of product organizations have engineering reporting to them, right? problem solved.

Engineering, go where I tell you to do to go, which is the the right way. I'm I'm an engineer, I I I get it.

It's great to be building stuff you want, but when you're building a house for example, you hire an architect and then they manage the general contractor and most tech organizations have done it the other way around where they bring the general contractor and then they're not happy with the house they built and they bring the architect and say, fix it.

Um, I'm seeing that things are being done, you know, in a way that's a lot more efficient these days because it starts with product and then it goes to engineering. So, the conversation, like my point being is constantly evolving.

Host: Got it. Uh, so we are almost at the end of our conversation. I wanted to ask, you know, a couple of questions that I ask all my guests. Uh, of the first one is who are the mentors that shaped your career uh, or helped you uh, you know, progress in your career?

Guest: Well, I learned from people and books and so, you know, Products that count for me is the ultimate mentoring engine if you want where every time I join a conversation or listen to one of our podcasts, I learn something about product.

I'm also a member of YPO, so I learn about, you know, running companies effectively including my own. And I'm a Kauffman fellow, so I also learn about the best practice of investing. So that's sort of how I I think about mentoring.

I think about it as peer mentoring and lifelong learning. Um, being an author myself, I I also, I'm an avid reader and so um, you know, always love to challenge myself and continuously reinvent uh, my my knowledge base.

Host: Do you have any favorite books that you uh, you know, you go back to or actively reading right now?

Guest: Absolutely. So for company building, I'm a huge fan of crossing the chasm. I think it's a classic. And then for culture building, um, I'm also a huge fan of a book called Prime to Perform, which is a study of uh the science of total motivation, like what drives people to be their best selves.

Host: And if someone, you know, recently graduated, you know, wants to get into product management or investing, uh, what would be your advice for them?

Guest: So recent graduate, I would recommend to get some experience um, at a you well run company. And then if you have been doing this for for a little while, then I would say you are ready.

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