September 6, 2022
James Currier is an expert in a key ingredient behind the success of companies like Meta, Uber, and Amazon. The key ingredient? Network effects. They happen when a company's product or service becomes more valuable as its usage increases.
James has not only seen the growth of digital businesses but also created four successful venture-backed startups himself in the past couple of decades. Those endeavors were sold to companies like Monster and PayPal. His fifth company is the early-stage venture capital fund NFX (you got it: network effects). He's currently a general partner there. Today, James advises top startups about how to build strong network effects to win – and win big.
Today, James and I talk about:
Well, listen, James: this is a huge pleasure, to have you on. I'm obviously a fan of NFX and, for full disclosure, NFX is a shareholder in our company. I've known Pete [Flint, GP of NFX] for a long time. And so, through Pete, I got to know you and Gigi [Levy-Weiss, GP of NFX] also, when I went out to Tel Aviv. So this is a huge pleasure, to have you on the podcast.
Well, it's great to be here, Brian. Thanks for having me.
Let's start off with before you joined NFX. You already had an interest in venture capital. We're going back to the 90s here, to date you a little bit, which I wouldn't say you're old, I'd just say you're wise.
You worked as an associate and you also had two websites about VC. So let's talk about where that interest was sparked. Where did that come from?
Yeah, well, when I got out of college, there was this venture firm named Summit Partners which I was interviewing [at], and they canceled their interview. But I kept in the back of my mind that there was this thing called venture capital. You got to remember there were maybe 30 or 40 active venture firms in the country in the United States at that point. I don't know how many they were in LatAm, maybe one or two. So it wasn't a big world.
Eventually, after working in tech software and tech for two and a half years, I went back to interview with Battery Ventures and got an associate job up in Boston. And so, I did that for three years. Learned about the whole ecosystem, smiled and dialed, tried to get founders to talk to me, and then take our money.
While I was there, I thought "you know, this whole internet thing, it's gonna make… The internet's gonna break down into communities. Why doesn't Battery own the website where the community of venture capitalists and technologists comes together?" So we started Venture Capital News Network, VCNN, and we built the website out, we got all these partners. It was 1994-95.
So it was always just interesting to see this group of people. I just love talking to the founders, and I love talking to the investors, who knew all this stuff that they had seen thousands of companies. They seemed so wise. And so, I was really just awakened when I got this job as an associate at Battery to really dig in and meet this community. And I just wanted to build software and media for them, as much as you're doing. It was just very early in the system, so I've gotten to grow with the industry over the last 25 years.
Yeah, we've definitely taken that to the next level with NFX, and all the amazing content you guys put out. So there are definitely some roots there that have sprouted some pretty interesting, powerful large trees now, that we've seen with NFX and all its content. You've founded, I'm going to count them, 5 successful businesses. Including NFX, right, because it's a fund that was still a startup when you got [it] going.
I just want to talk a little bit about the first one. This goes back to 99. You had a website called Tickle. You once wrote that you learned these viral growth techniques at Tickle that were used by the rest of the internet a couple of years later, really. What exactly did you learn with Tickle that was so different, and how did you actually get to learn it?
Yeah. So, Tickle was a user-generated content website. It was one of the first ones. In 98, I realized that the internet wasn't going to be about one-to-many. Which is "Nicole Kidman and Tom Cruise": you do a movie, you put it on TV, and you push it out to everyone. The unique thing about internet technology was that you could have people on both sides making media for each other and that our biggest interest is ourselves and our friends, the people we could know.
And so, Tickle was really based on that assumption. It was very early, of course, in this whole process, and so we struggled for the first couple of years to get traction and had to keep reinventing the growth engine all the time because we didn't, we couldn't buy traffic. There wasn't anywhere to buy traffic from, really, at the time.
And we had to learn how to get it viral because we didn't have any money to buy traffic. And, in fact, the virality would go for about 2 or 3 months, and then stop. And so, every 3 months we had to reinvent the products, we had to reinvent the business. Because it was a crappy business. And I had to learn how to do A/B testing, which wasn't a thing back then. We had to learn how to build viral paths and measure K-factors, which wasn't a thing. I think Michael Birch, who worked for me at the time then went on to do Bebo, he came up with the name K-factor.
We invented the email address importer, so we could scrape all the email addresses and have people spam them out. There are so many techniques that we had to develop because we had such a bad business. That made us strong. It's like Sardaukar in Dune, you know. They grew up on a prison planet. Well, we did too. And so we became very, very good at this. Reinventing it all the time, going back to first principles, redoing it, and not being afraid of doing that. And so, it really trained us to be growth experts before there was growth hacking. And we were some of the people to invent most of the viral techniques. I think at one point we had… A quarter of everyone on the internet was a registered user of Tickle. That was 150 million users when the internet was 600 million people.
So, on the one hand, I benefited from having a crappy business that had to be reinvented. On the other hand, I benefited from the fact that it was so early in the time of the internet that even someone with my talent could do pretty well.
I mean, that's an astounding number if you think percentage-wise. Tickle was an experience that maximized your learning. It forced you to uncover all these techniques. So, you're an entrepreneur. You've built a couple of companies, and we're not going to go through your entire trajectory because there's a lot that you've done in the last couple of decades. You're also an angel investor in some of these startups. You invested in Doordash, Patreon, and Poshmark. When did you go from entrepreneur to angel investor, and how does that happen?
That's a good question because I didn't actually make the mental jump to being an investor until about 2015. I started angel investing in 2004, right after I got some money in the bank from my first payout from Tickle when Tickle was acquired by Monster for about US$ 110 M, which back then was kind of real money.
And my first investment… I think it was Flickr. I think my second investment was Goodreads. One of my third investments ended up becoming LiveRamp. So, the first 3 to 5 investments did very well and we ended up investing, Stan Chudnovsky, my co-founder at Tickle, he and I created an LLC. and we would just invest 50/50.
And I think we ended up investing in 50 companies over time. This was literally just done on the side, while we were building other companies after Tickle. We didn't really think too much about it, it was really just our friends coming to us and saying, well, you put in 50k, you put in 100k, and because they were our friends, we did. That was it.
And we lived in Silicon Valley, so we had access to a lot of these things, not because we were trying but just because we were… In fact, one day, we were supposed to meet with a company and we had a problem with the software that we were building. And so, we had to cancel the meeting. And it turns out that that company was called Uber and they were trying to raise half a million dollars. We just never met with them. But we could have put in 25k, I had no idea. So, it was just all random. \
And, in the end, I think we got 33 times our money on our angel investment portfolio because it was such a great time, such a great geography, and we had such great friends. And so, that's really how the transition was made. But I'll tell you, in 2007, I was arguing with Bill Gurley about this new company called Twitter, and I was saying that this thing was going to be massive and he was saying it was stupid. And all of this, you know, we were in front of 15 people at this big dinner. And so, I wrote a blog post saying investors get into Twitter, and it's like a very short blog post on my OogaLabs blog from 2007.
But it didn't occur to me to go to them and say, "here's 10k, here's 50k". It's just, I wasn't thinking like an investor. I was thinking like a builder still. And so, my mental shift didn't take place until over a decade after I sold my first company. And that's when we started NFX. And now I've been thinking about it more, but still, fundamentally, in my heart, I'm a builder. So, I've been adopting the investor mindset since then.
Well, you can tell [by] the way the partners approach [at] NFX that it's a real builder mentality because there's a certain way to do venture capital that's existed, and then NFX has taken a different look at it. I think it's interesting that you mentioned a lot of this stuff was just… To use a little basketball analogy, it's like you're just around the hoop, right? You get a rebound, and it's there, and you just put it back up, kind of by osmosis you're getting this exposure.
And the same goes for me. I remember meeting David Vélez from Nubank, having dinner with him, when he's like, "yeah, I'm gonna go build this company", and I was like, "oh, that sounds pretty cool." One, I didn't have any money at the time. But, you know, it's one of those things where you see those things and, if you're a builder, you're in the mix, you've built a venture-backed company, and you've got friends that are doing it, there's a very good chance that [in] your community of founders that are around you there are going to be some pretty big success cases.
And so, it's something for the founders listening to the podcast here – even if it's 5k checks, 10k checks, if I had indexed all my friends' companies over the last 10 years, it would have done pretty well.
To that point and to your listeners, there's an article on NFX called Your Life On Network Effects. It walks through the math of why what you're saying is true, and how much of an impact it has on your life to be in the right networks, and that means choosing the right cities to live in, choosing the right industries to be in, choosing the right people to attract yourself to, and making yourself the type of person who those amazing people want to have in their circle.
Doing all those things, as Saar Gur said, "the only, the most important decision I ever made, was moving to Silicon Valley in 2003." Now today the tech world is spreading out from more than Silicon Valley. But the point was, he was putting himself into the network. Into the network that I was already in because I had moved there in 2000, after the crash. And, again, it was also the most important decision I made. Other than marrying my wife, you know.
And that type of decision matters for everything, because the rest of it just flows. And so, a lot of people, particularly investors, like to take credit for things. But really, what you should be taking credit for is the courage and the willingness to move your network to a place where the network flourishes. Where it grows, and it's multiplicative and it's compounding over the many years that you're going to be in that network. And choosing that network carefully.
That's an important thing to understand, and it's important to have the courage to make that move. But other than that, we're all kind of flowing with history, and we need to be a little bit more humble about what we've contributed to the fact that this network is building, these companies are building, these venture firms… And we're all just pretty lucky to be here in the end.
I love how you bring up this article because I literally have this article bookmarked because I was going to ask you about this article specifically. And I think that you anticipated that question, but I wanted to take a step and go a little deeper on that. How do you think that relates to the current state of affairs? You mentioned that Silicon Valley is a different place now and the world is becoming… I guess, to use Thomas Friedman's, "the world is flat" now. There's more activity across borders and Silicon Valley is kind of in the cloud now.
So what are the takeaways for the audience listening that you know might be not based in [Silicon Valley]? I'm in Mexico City right now, you can see it behind me. I'm actually at the LaHaus' office, a co-investment of ours. What's the takeaway here? Picking up and moving to Silicon Valley is not really practical for a lot of people that are in Latin America. So, what are the takeaways for aspiring entrepreneurs that are based in Latin America?
Yeah, so, a city is just a network. So think about… When you move to a city, you're joining that network. And then, through serendipity, you're going to get embedded into friendships, companies, and relationships because you're physically living there. And that's been true since the beginning of time, when humans started cities.
But there are other networks that you can join. There are discord servers. There are Reddit communities. There are mailing lists. There's whatever is in your city that you're living in. There are newsletters around the particular market spaces that you're in. There's Twitter. And so, there are lots of networks you can now join that have been digitally enabled, that didn't exist 15 years ago, that are taking the load off of the traditional network we all joined, which was the city we were in.
Now, that being said, we should be excited about this, but we should not underestimate the serendipity of physical location. The personal touch of humans and how we communicate, how we build trust. You still are going to want to be in physical places with people, interacting with them. And so, that won't die. But it won't be as concentrated as it has been over the last 30 or 40 years in Silicon Valley. That's going to get more distributed, but you're still going to want to fly, you're still going to want to break bread, you're still going to want to actually develop experiences with other people so that your friendships go to that level of trust so that you know the inside information. You get called when there's a great investment opportunity. When you want to hire a great person, you need to be on the inside of networks. They're still going to exist. They're just going to look a little different going forward.
Just double-clicking on that a little bit, I agree with the IRL, in real-life stuff. That's super critical. You know, we're now launching Vamos Latam Summit, which is going to bring everyone together across the region. And we think that you got to figure out how to manufacture that serendipity, and it's getting people together and connecting.
How would you look at… You mentioned a lot of other virtual communities. Discord, Twitter, whatever, choose your different kind of network. How would you go about evaluating and optimizing so that you [have] the least amount of effort to maximize your objectives?
I don't think I would think of it that way.
There you go, that's a good answer.
I think the mistake that's… Okay, so, 25 years ago, 30 years ago, this internet thing, this software thing, this startup thing, it wasn't a thing. The only people who were doing it were people who genuinely wanted to build a product, who genuinely had this personality type where they were seeing the future, they felt alone. No one understood them. And they would eventually move to Silicon Valley to find their people.
Now, that way of thinking is spreading, that way of doing business is spreading, and people are being attracted to it not by personality type, but by money and by optimization. And so, it's not getting ruined, it's just [that] you have to be careful not to go to the end of the spectrum where you're doing this for money, how much you're going to make, how much power you're going to get, or how much you could do it in an optimized way.
I think you have to do it from a place of authenticity. You have to bring your authentic personality, your authentic interests, and then have it go. And if you end up wasting a lot of time off in some corner, like crypto in 2013/15/16, well, guess what? If you truly love it, in 2017, you're going to get richly rewarded in money. And then you're going to have too much money, and you're not even going to know what to do with it. And it's really not going to change how you relate to yourself, or how you relate to your parents, or your girlfriend or your boyfriend, and I think that we shouldn't over-optimize.
We should just be ourselves, and be authentic about it. And find the people who light you up. Find the product ideas that light you up. Find the sectors that you feel like you can make an impact in, that really resonate with who you are, and go from there, rather than worrying about the money or the optimization.
I love it. It really resonates with me, the word authenticity. It's something that it's just… Doing what you love naturally follows these things. I feel kind of like an ass for asking the optimization question now when I hear your eloquent answer. But I also know that I'm doing what I love. Because it's the ikigai: what I love, what the world needs, and how I can build a business. But I love the answer.
And, if you follow your authentic self, it might not maximize your revenue. And I'll give you an example, which is that I tend to like things that are social, and Max Levchin tends to like things that are transactional. When I come up with business ideas, they are typically social, they're typically about the human. And when he comes up with ideas, they're typically about money and about fintech.
Well, guess which makes more money? Well, there's more money in money. But if I try to go [and] just do payments companies, it won't be as authentic for me. I won't have as much of an advantage, and I won't live the life that is proper for my personality and my interest.
So, yeah, has Max made more money than me? Yeah, but I've pursued the things that fit with my brain in an authentic way and I have surrounded myself with people who are like that as well. And it's made for a great life. Of course, I had too much money. I was born at the right time, lived in the right place, and have more money than I need. And most people who are listening to this, if they follow a real passion within the tech world and work their asses off, are going to end up with too much money anyway. We're the lucky ones. So, don't… Again, you got to follow who you are. We can't all be Max Levchin.
I think there's longevity too, right? I mean, when you make a decision that allows for you to be consistent in your motivation, then you just stick it out long enough to where, eventually, you're playing the long game and the results just happen. Giving up is a big part of the reason why people don't have the success they desire.
You're just distracted by having fun and feeling fulfilled, and then you wake up and you're like, "oh, actually, interesting, this resulted in some outcome that I couldn't have engineered." I like that perspective on life.
I want to dig into a little bit about product design and marketing because I know that, speaking of passion, you have a passion for that. I've heard from you before, talking about how small changes have this profound impact on growth and adoption. Can you expand a little bit more on that for our audience?
Yeah. The act of trying to grow your business is an ongoing, every day, multiple times a day analysis breakdown. And redo, redo, and redo. Typically, it starts with the language. What language are you using to describe your business to yourself? What language are you using to describe it to your employees, and then to your customers? How do you use different languages for different types of customers? Because if you operate at that level of changing a word, you can suddenly go off in completely different directions.
If I'm a social network, it's one thing. If I'm a directory, it's another. Does the product look the same? It might actually look the same. But over weeks and months of iterating on a directory, I'm going to get to a very different product than if I iterate for weeks and months on a thing called a social network.
We had a product called Tickle Share, which we called "a news site voted by the community." Excuse me: we had a community site about news. We emphasized the people in the community putting up the news. Digg and Reddit, they [were the ones that] said we are a news site voted by the community.
Sounds about the same, right? And, in fact, the features are all the same. The interface is all the same. The difference was that the number of votes that a news item gets was the thing that was big letters, you know? Took up more pixels on the page, versus how many votes, who voted, or who posted it. That was small on Reddit and Digg. And, for us, it was the person who took up the most pixels.
That small difference made all the difference, even though they were very similar. And so, you have to, as a founder, be looking constantly at the very details, the nuances of every choice, every element, every word, the balance between things, and the emphasis. Putting the right emphasis on the right syllables, you know? You've got to be constantly rebalancing and reanalyzing that, to find your optimum growth rate.
And if you aren't growing really quickly, then you need to keep making significant changes to what you're doing, because you are too smart and too valuable to society to be doing something that's only growing okay. You need to really shoot for greatness. You need to shoot for something that's explosive because it's not worth your time otherwise. Plenty of people do things that are not explosive. They don't have your courage. They don't have your intelligence. They don't have your connections. So, you've got to use all those things to their greatest effect.
Constantly pursue tremendous growth, like 50% a month, 100% a month. In our case, sometimes we would be growing 250,000 users a day. And, once I knew that it was possible to grow 250,000 users a day, I was never satisfied with anything less after that. And that is what allowed us to get more and more viral, more and more better at growth, more and more great at looking at the very details and unlocking them step by step, mathematically, until we would get to tremendous growth rates. And we got, I think, 14 companies that grew to over 10 million users over the course of product design and development in over 14 years.
Wow. It makes me want to ask a question. This is more for personal interest. We are now just starting out, building our content team and a bit of marketing. And there's a temptation sometimes because I've seen it work for certain companies or people, to just do lots of quick-hit content and just flood with tons of content versus doing more long, thoughtful pieces. And there may be an opportunity to grow faster.
But, and obviously, this is a very high-level question and you probably have a bunch of other questions to expand on my question, what are your general thoughts about that? I mean, I look at the pieces at NFX and they're just so thoughtful. They're deeper. What advice do you have for us on that? Because we want to be super useful to founders, that's our north star, in Latin America. And we want to democratize more access to information and build a large audience. So, what is your quick reaction to that?
Yeah, it's a good question. There are two ways to look at how you want to go about producing content and getting viewership. One is: what is your authentic voice? Because some people are really good at tweeting, some people are really good at short-form, and some people are really good at long-form. You need to find out what you're good at.
Some people are good at videos, some people are good at audio, and some people are good at making little videos of themselves, like a TikTok, a Vine, or something. And you need to find what format best fits you. Your face, your voice, your tone, your way of thinking, the way language pours out of your brain. And don't try to fight it.
Boy, I'll tell you, if I were a great tweeter, life would be so much easier. But actually what I'm best at is long-form. And so, that's what I do, long-form. I'll tell you, I've tried to tweet, and my brain doesn't produce language that way. It's a very special medium, very few people are really talented at it. Those who have been talented at it have reaped tremendous rewards over the last decade, 15 years. But that's not me, unfortunately. It'd be easier for my staff if it were.
Number two: you have to figure out what your needs are. We raised a venture capital firm and, therefore, we have 10 years of management fees. We don't need to get a quick hit. We can play the long game. Most startups aren't like that. You need to show traction in the first 24 months because that's about how much capital you typically have. And so, our needs allowed us to play the long game, which actually fits with our personalities, which is, we're better at long-form than the short-quippy form.
And the other thing I would say is that none of us really have the personality type to be narcissistic, try to get lots of attention, and use hyperbole to try to shock people. Some people are like that, there are some VCs who do that and they get a lot of viewers and listeners because of that. And that's not me. Whether it's hustle porn or other things that they like to do, that's also not me. So, I was incapable of doing many of the things that might get more traffic, and it also didn't fit with the needs of our business model.
So, we had something that worked together for NFX, okay? And you just need to look at those factors. What you need to do is: you think about your content strategy. For us, in our business, we invest now and we'll probably get returns 10 years from now. We're now 5 years into NFX. So we'll be getting returns from what we do now 10 years from now, in 2032. And so, we need to be playing the long [game]. So we thought that the evergreen content that we do, which is very thoughtful and hopefully can be read 10 years from now and still be useful, really fits with our business model. So we were lucky in that way.
I'm hearing definitely an authenticity theme here, doing what is natural to you, and it fits your MO. Speed is something that you've talked a lot about, and you also have this term, "fast-moving water", right? As in, small and nimble beats large and sluggish every time. And founders need to have that capacity of making that mind shift to creativity, and shift their companies' focus to meet the market needs. Could you talk a little bit more about that, and where do you see this fast-moving water running through today?
Yeah, so, the term fast-moving water is a term we use with our founders to help them focus and get a sense of where the energies of the world are going to propel them. Because, if you get into a slow-moving piece, there's… Think of technology and markets as a river, and there are going to be pieces of the river, slices of the river, where the water is moving faster, around rocks or something. And you'd rather be in the fast-moving water than [in] the slow-moving water, or even [in] the eddies, which might even be going backward. If you find yourself in an eddy, you need to violently move your company and your mindset out of that into something that's more fast-moving.
And this is true before you start a company, when you're thinking, "what idea do I really want to pursue." And you need to make sure that you've appropriately thought through [about] where the world's energies are moving [to] so that they will help you, not hinder you, as you go forward.
Startups are so hard, to begin with. If you're fighting the current, it’s nearly impossible. So you need to hook a ride on a quick-moving current, and then, once you've started your company and you've got your 10 employees, you've got your 25 employees, you may again need to be moving that into the fastest moving water. You always want to be moving into the fastest moving water that you can get to from where you are today.
And [have] that courage to tell your employees, "I know you came on to do this business, we were going to do a B2C thing, but we need to move to B2B." They're going to say, "but it seems to be working, are you saying that I wasn't doing a good job in the last six months? I mean, I moved the numbers like you said I should. Like, "yeah, you moved the numbers, but it's only good numbers. We need great numbers, right? We're a startup. We're shooting for the moon. We want to go into the fastest moving water, not in this okay-moving water."
Taking that move as a founder takes a tremendous amount of courage and we use that phrase with them, to give them the courage that they should be in the fastest moving water. So, you need to keep asking yourself that phrase.
Mark Zuckerberg had a US$ 200B value company, and he saw the faster-moving water was in texting. And so, he spent 10% of his company on a 50-person company called WhatsApp. He had been in the fastest moving water when photos were the thing, back in 2004 and 2006. But, by 2011, he needed to be in faster-moving water, and he was courageous enough and strong enough to give away 10% of his company so he could at least keep Facebook in the faster-moving water.
And in terms of where I see the fast-moving water today, we're going to be talking about generative tech. We think that having generative software at the edges is going to change not only consumers' but also B2B's experiences. Now that AI's gotten cheap enough and fast enough to be implemented at the edges of the network, not just in the center of the network. We think that's going to be fast-moving water.
Can you explain that a little bit more for the listeners?
So, if you look at something like DALL·E, or if you look at GPT-3, both coming out of Open AI. If you look at what Figma is doing in terms of their new features, where it helps you generate from zero to one these new ideas about what your website could be designed. There's a company called the.com, which has a generative website-building platform that is very interesting. It's probably going to double and triple the size of the internet over the next 5 years, because the AI, the ML, these can… By clicking a button or just by showing up, [it] will generate something brand new.
Not doing a database call, we've had database calls since the beginning of the internet, right? That's what the internet does. But this is now going to generate something brand new, that never existed before, on the edge, for the user, in near real-time. Whether it's developing a brand new piece of music, a new image, a new text, a new paragraph of text, or new email marketing messages for your sales calls.
There's going to be an enormous number of new applications, now that we have this AI at the edge. And so, it's going to really transform most of the pieces of software that we use.
Yeah, I think that the dolly example is writing a text of a description, and then AI generating the actual image. That's a good example of what that is, and it's really unique and sometimes really impressive images that are created out of nothing. Thinking [about what] the impact of that is going to be, it's mind-blowing.
Yeah, and we obviously think LatAm is in the fast-moving water, right? I mean, there are businesses that, if you tried to start them in the US, it would be a slog. But in LatAm, they can accelerate really, really quickly, because LatAm is now ready for the fintech revolution. LatAm is now ready for the distribution revolution. It's ready for these marketplaces to engage everyone.
Everyone's got their smartphones but nothing's been built yet. So, the energies of the countries, the energies of how everybody's thinking, the words they're understanding, their relationship to their phones, all is now prepared to create really fast-moving water for many of the B2B and B2C marketplaces that we're seeing around LatAm.
It reminds me of a quote that – you know, you do tweet, because I read this on Twitter one time, maybe it's not your specialty but I've seen a couple of little nuggets you've dropped, and I remember it – really struck me, because, in my case, I got to know Pete because I kind of copied his business a little bit, right? And then launched in Latin America.
And what I realized halfway through that is, "oh, there's actually no MLS. So, I can't actually just copy his business." And I think the way you describe it is "breathing new energy into a business", is the way that I recall. Can you elaborate on that, and maybe [on] the relevance of that for the LatAm startup ecosystem?
Yeah, so, the way I've realized is: you can clone somebody's business or you can try to create something brand new that no one's ever seen.
And if you clone, you're probably going to get it wrong and, at least in the US, people will sort of disparage you for cloning and not coming up with something new. That's the culture up here.
If you try something brand, brand new, it's really unlikely to work. People will say "attaboy, keep going" but no one will actually use it because it's brand new, and it tends to be a real slog. You're taking a lot of market risk because you don't know if the market even wants what you're building. It's a new idea.
And so there's this nice middle ground, there's a Goldilocks Zone where you bring new energy to a business that's already working. So it's not quite cloning. But it's not doing something brand, brand new. And the biggest companies you know have all done this.
So, Google comes out in 1998 with a blank site and just a search box. And everyone said, "oh, it's so brilliant." Well, you know what? Infoseek had done that 3 and a half years earlier. Infoseek had done scraping. Infoseek had done spidering. Google came along with a better name, faster servers, and a somewhat better search engine – it was about 10x better than AltaVista at that time. But they were just breathing new energy into something that was already working. And the fact they came very close to almost cloning but there was enough new energy there, with a crazy name like Google, this search took 0.29 seconds, and figuring out that they should distribute their search out to AOL and other places where people are searching. There was enough new energy that they were able to make a go and it ended up dominating the world.
The same thing is true of Facebook. It was probably the 100th social network with the same 5 features, but because they had real names, because they started [in] college… They're actually the fourth college social network that ever launched and, in fact, as the movie The Social Network showed, Zuckerberg was copying. He was stealing and copying at the beginning and then he got going. And then he was in the position to do some new things after that. But to get going and to get to be a US$ 100B dollar company, he basically just brought new energy to something that was already working in that Goldilocks Zone.
And so, I would suggest that founders should look in that Goldilocks Zone to find new businesses.
Yeah. When I met my co-founder Gina, we were both [looking at] On Deck. I met Eric Torenberg and we were kind of inspired by a lot of the stuff that he was doing in On Deck.
But the vision that we had for Latitud, and that we're still in the middle of figuring it out, is the opportunity was not in the education business, that wouldn't be a leading revenue. It was the opportunity to solve founders' problems that existed, to reduce friction for them. And so, there's more of a software component rather than just an education business because that might not be as large of an opportunity in Latin America as doing the same somewhere else.
One question I have: if you look at Latitud, we're kind of this weird mix of education, software products, company formation products, and a handful of other things that are the software stack. And then we also have this little investing piece. How do I know if I'm doing too much?
I feel like these things fit together and let's, since you are the network effects guy… I see these network effects happening, the founders coming in, the nodes being grown, the connections happening, people helping each other, and a lot of that serendipity is being manufactured. And then I see the opportunity to listen to the community and solve problems for them. And then build a business by doing that. And then seeing an investment opportunity, because we're seeing companies really early on.
So, what's your advice to me? Because sometimes I feel like our hair is on fire. We've got all these different things going on. I'm sometimes having to cut out stuff because we're like, "okay, we tried this, but it's not getting enough traction." We try to program, "we're not gonna do something for late-stage companies, it's not our focus."
So, how do you manage the chaos of that? Where you have maybe product-market fit on something, one thing, at a certain degree, and then you're testing something else. You have a product-market fit there. How do you not boil the ocean? Because focus is always the obsession for early-stage founders. But, at the same time, leverage the network effects when you have multiple things that kind of help each other grow.
Yeah, it's a good question. We have a concept we call "broad, narrow, broad." So, when you start a company, often you need to go broad. You need to do a lot of different things in order to find out what's really working. In particular what's really working and what has a network effect.
Once you've identified that one thing, then you need to go narrow. Meaning, you need to stop doing everything else and just focus on the thing that's working. And then, once that gets going and that gets the momentum, then you can go broad again and start doing what we call reinforcing.
So, if you go on NFX, there's an article called "Reinforcement," which should get a lot more traffic than it does. It's a very important concept because, once you've got the core thing working, that's going to work no matter what. Then you can start reinforcing that.
And you said, "I've got this one thing but then this other thing helps it," you're absolutely right. So, an example would be Facebook's got Facebook, and then they add Facebook Classifieds. And they tried it 5 times before it worked. But they reinforced their direct network effect with a marketplace network effect. Two-sided marketplace network effect.
And now, the fact that both are there gives people more reason to go back to Facebook and serendipitously run into things they could buy or people they can read about. But they did that about 20 years to 15 years after they were going, and they already had something that was really strong working.
So, the point is, don't do too many things at the beginning so that you can't notice the one thing that's the most important thing to make work. And then, when you notice that one thing, clear out everything else. Just do that one thing until you can start reinforcing and going broad again.
Yeah, I like it. I found myself with the team talking about this, and the visual that I gave everybody, which is – I don't think it's a very good visual, but it helped me visualize it – a hundred hourglasses stacked on top of each other. It's wide, then it goes narrow, then it gets wide, and you repeat that process.
The question I have is making sure you know if you've nailed it before you scale it, and ensuring that you've locked in and found that thing that really matters, that you can take to the next level. That's a constant struggle.
And then there's the other mistake that you can make, which I made in my last business, where I found something we optimized the heck out of it but we were too narrow in our thinking for too long. And then we let the competitors in, [they] just walked through the back door because it was wide open. And that's another mistake, the complacency of being a leader in the market. You've got to make sure that you can challenge yourself. So, it's an interesting balance.
You can't stay narrow too long, and you have to be aware of the other fast-moving water. You have to move yourself to that fast-moving water.
And often you have to set this up culturally with your team too, because otherwise, they're going to tell you, "you mean the thing I did for the last year is useless? I'm mad at you," and you have to say, "yes, it was useless. But it's not useless because we're all here, we're all on the team, let's go forward." You've got to set it up culturally so you can open back up when it's time to open back up.
Yeah. You've got to have that mantra of "the only constant as change." in a startup. And you've gotta drill the message home. Otherwise, yeah, people feel a little bit unappreciated because they put energy into stuff.
It's about managing expectations, right? That's what a lot of leadership in startups is.
Yeah. Instead of, "Brian keeps changing his mind," it needs to be, "Brian is leading us over to the fast-moving water and that's really good for us. That's exciting."
I'm going to start to borrow your "fast-moving water" because I literally recorded a short little video yesterday, and it was literally on this topic.
And so, you're making me feel… One, I don't know if we're doing everything perfectly, and I think that we may need to stick one thing out a little longer before we test another thing, maybe we're trying things too early. But at least you're making me feel smart that I'm doing it the way that makes sense. And these are a couple of decades of experience. So, it's good to hear that. It's validating to hear that.
We've got another 5 or 10 minutes here, and before we wrap up, I wanna ask you something around… There's some great content on NFX with the different types of network effects. And I think that you've mapped out 16 types of network effects, and counting. What is the most common perceived network effect that's not a network effect, that people think is a network effect, in startup land? If there's anything.
There are two things: data network effects and viral effects. Viral effects are not network effects.
Viral effects are about getting new users for free from your existing users. And when people hear network effects, they think that's what we're talking about. That's not true. It's not even close. And I've been explaining this to people for 10 years, and I have to say this every time because people just are confused. And even when I tell them and they nod their head, they still don't get it. It's a very different playbook. Okay, so first of all, network effects are not viral effects.
Secondly, within network effects, a lot of people think, "oh, the more data I have, the better my algorithm. That's a network effect." And… it's not a very powerful network effect. I often get a lot of people coming to me and saying, "well, I've got this data network effect." I'm like. "nah, not really."
There are very few companies with true data network effects. A company like Waze would be the one we could point to and make it obvious what real data network effects look like. Because that piece of data, which is the traffic data, changes every 15 or 20 minutes. And you need tens of thousands of people into [the] geography every 10, 15, or 20 minutes to keep refreshing that data. It's really hard to get 20,000 people in the same 5-mile area to be populating the data. So Waze does really have a data network effect. Almost no one else does.
And so, that's the biggest misconception. It's "I've got this data network." Well, no, you just have a computer and a software which records all the data. Don't just automatically conclude it's worth anything.
I think that's really useful because it's easy to fall into some traps and kind of sell yourself on an idea that really doesn't have the compounding effects that the network effects have.
Let's get into some of the ways that NFX helps its portfolio companies and how is the help different from supporting any other startup. When you look at network effects businesses, what are some of the best practices and metrics that you follow? I guess we already kind of covered the mistakes, so let's focus on the positive ones [practices], that actually yield those results. And how in practice NFX does that?
Yeah, so, there are tens of different types of metrics that we look at when measuring all these different network effects businesses. And you're right, we've identified 16 different network effects and there are playbooks for each of them – how you bring them into your company, how you design for them, how you shift the language, and the flow of the software to bring them in.
The typical big three are: the direct network effect, like a Twitter or a Facebook. The two-sided marketplace network effect, like an eBay or an Amazon marketplace. And the platform network effect, like a Microsoft OS, an iOS, or a Salesforce. They built a platform on which all the developers developed the apps on top of. You're basically your operating system and, particularly for B2B or even biotech, the biggest available network effect is around this platform network effect.
And so, those are the big three. And then there are a bunch of others. Obviously, with things like bitcoin, you've got a big belief network effect, where the more people believe, the more valuable it is, period. But that's hard to maintain and certainly hard to generate.
And what we do with founders is we sit down and look at their product. We look at how they go to market. We look at what the product does. How its language [is].
And often we'll look at the name of the company and we'll actually help them change the name of the company, we'll change the reasons that their customers have to use their product so that it leads toward things that are more multiplayer. It leads towards product experiences which include the network in the value proposition at the beginning, from day one, from the moment of inception, of learning about a company or a product, you want the network to be present.
And then we change the interfaces so that the network is visible. How many people are online right now? How many messages were collected? So it's not just a single-player game.
And then we get into profile development. We get into messaging and cadence of messaging to keep that network feeling alive, which exists in a lot of things, like Craigslist and Facebook instinctually, basically, but needs to be manufactured into many other businesses. If you're doing a loans business in LatAm, how do you bring these network effect concepts into it?
And for each company it's different. We'll pick out one of the 16 and say, "let's start with this one." And then we'll get that one working. And then we'll reinforce it after it's working. And so, that's generally the process. And it's different every time but, more and more, we've got a checklist and a narrow playbook so that we can very quickly do it with the founders over the course of five or six meetings.
I love it, man. Well, I'm excited to dig in more with you on our business as well. And there's a lot we can learn from all the frameworks that you've developed and the experience that you've had. And so, I'm excited to discuss that with you in more detail.
Let's just end the episode. I think it's important to give a little more context to the founders out there listening. NFX: just give us a little breakdown. Total AUM, how many funds you've raised, average check size, all that good stuff, stage, sector, etc.
So, we're the top Seed venture firm. We've got a US$ 450M fund. A total of a billion dollars under management. We just do Seed investing. So, we're looking at US$ 1M to US$ 3M checks. We have a staff of 55 people. We, as GPs, don't take salaries. So, we're using all the management fee to hire people who can help you, the founders.
And we help with PR, and we help with design and building your next deck. We've got a person who's going to be there for follow-on financing processes, to help you with all the details around that. We've got people on the culture side, on the compensation side, legal side. We've got a lot of staff members who are there 24/7 to help you with your business.
So think of us as sort of a Seed Andreessen Horowitz. And, you know we've been at this now, we've been a venture firm, since 2017. We've got 5 partners, we've got 3 principals, and then the rest of the folks are on staff. We've got a data and software team of 20 people so we can go out and help you understand your context and your competitive set. Once we've made the investment, we certainly use item [data and software team] to help us decide who to invest in.
Our aim is to be the best Seed VC in the world. So we want there to you guys in LatAm and YC in the US. And then we want to be the number one Seed firm. And then companies like Andreessen might take the number one spot for the Series A. That's where we wanna be and that's what we're aiming to do.
We've made about 120 investments. We've got about 350 founders in our guild, which is the name that we give to the portfolio. They're all sharing with each other, they're all sharing KPIs.
We have a big thing in June called Solstice, where people fly in and we have this great event north of San Francisco. And it's like the NFX burning man. We try to get everybody connected and communicating so that they can help each other as well. We've got a thing called Gilder, which is like Facebook for our founders, where they all communicate and ask questions.
And we've got a 500 video library of all the shortcuts that you can take for product design, and for go to market, and for pricing, and all the various aspects of your business, we've got videos for them. so that you can very quickly move on to the next thing in your business and not be encumbered like your competitors will be.
Man, that's incredible. I missed the Solstice, I was on vacation. But I'll definitely be there next year. And I did see your guys’ little team gathering at Pete's house in Sonoma, which looked pretty awesome too.
So, I loved how you summarized your position in the market and it was a logical step for us to partner with NFX, given where we're focused. And then Andreessen connected having you as co-leads.
We're really happy to have you guys as shareholders and excited to continue to disrupt this venture-backed ecosystem. Really, just remove some of these barriers and friction points for founders, which we're both highly aligned in that, and we're just approaching in slightly different geography. Even though, for those listening, NFX has been investing a lot more in Latin America. I think we've co-invested on, I'd say, 5 or 6 deals recently.
Pete's actually coming down to our Vamos LatAm Summit and I'm going to interview him on stage there. So, it'll be a great opportunity to cross-pollinate a little bit more.
Man, thanks for coming on. It was an awesome conversation. I feel lucky that I get to have these chats with people because I get to hear and learn from all these really smart people to my benefit. This started about a year and a half ago, just because I was at my apartment and I wanted to learn from other people. And then I said, "why don't I just hit the record button?" And so, this is an extension of that and it's a privilege to have you on.
Well, we're privileged to be investors in you, Brian. And we really love what you guys are doing. It's such a great, scalable way for us to spread the word to founders to live this founder’s life, not to work for a big company. Hopefully, that works.
Love it, man, and appreciate it. Thank you.