Mike Maples: Three Frameworks to Evaluate Startups and Founders | E1242

To me, in all investing, there's two. One is you gotta get paid for the risk you take, and the other is always play offense with your money. You have to play the game that's on the field, but you don't have to play the way everybody else plays. Ultimately, if you're not finding inefficiencies in the game, you ought to be asking yourself, "What am I doing? What am I in this for?"

Ready to go? (instrumental music plays) Mike, I cannot believe that we finally got to do this in person.

Yeah.

Because you've known me for nine years.

That's right. Yeah.

Thank you so much for joining me this evening.

I've- I've known you since probably before you got a lot of downloads. (laughs)

Oh, my God. But literally, you, I think you and my mother were probably the- the first few. (laughs)

(laughs)

But I want to start with the seed ecosystem today because D- I, you know, I'm in it now. It feels harder than ever, and I just want to start with the statement of do you think you can have a seed fund that's under $100 million today?

Well, I think that you can as long as you're way less than $100 million, so I think that you can do investments of less than $100K. And we've talked about this before, right? I mean, I imagine now with your m- major fund, Harry, you know, you probably don't let angels come in for much more than $100K, right? Like-

No way. Not a chance.

Right. Like, if- if you say, "Hey, I'm doing $750K funds, and I'm..." Or- Or $750K rounds, and I'm a, a, I'm an angel, and, "Harry, let's go do deals together," you might say, "Hey, that's great. Good for you. I'll see you out there." But are you gonna do that person any favors? Probably not.

No. No, because with the $500K that someone needs from a, you know, smaller fund, I could get five amazing angels in for $100K each.

Yeah. But- But I suppose if- if you're investing less than $100K... Let's say Tim Ferriss comes to you and says, "I'm willing to do $100K" in some project that could benefit from his brand and publicity, probably.

100%. Of course.

Yes. And so if you, if you say, "Hey, I'm- I'm doing $100K checks," I think that could work. But- But that's a fund size of probably $10 million, right? That's not $100.

Why is your fund 150 when it was 70, 80?

It's a long story, but- but basically, to me, your fund size is your strategy, and I guess I'm kind of famous for saying that for a long time. I don't know if I've ever really expressed why that is, so here's why. The power law is real, and so people don't realize that Pareto is not just 80/20. It's a curve. It's a continuous curve. So 80% comes from 20%, but it's also true that 4% yields 64% because 80% squared is 64% and 20% squared is 4%. And so when you have a fund... Let's- Let's just use ballpark figures. Let's say you have 25 investments in a fund. Your best investment is gonna have to return 64% of all returns, that one deal. So if you want a five X fund, you know, that one investment by itself needs to return, you know, 64% of five times the fund in profit. And so that's why your fund size is your strategy. Your fund size is basically... It's kind of like if you're a pole vaulter. It's the height of the bar that you set that you promise to jump over, and if you don't jump over that fun, that- that- that height, you have a bad fund.