Mike Maples – Floodgate 2 of 2

“Innovation is the asymmetric weapon of the startup.” Floodgate’s entrepreneurial approach to investing is helping to fuel the democratization of innovation.

Matthew: What skills or talents come naturally for you, and what has been difficult and how have you managed that?

Mike: I think I was pretty good at the marketing side of things and there were really two parts of that. One is finding the market in the first place. So I was better than most at visualizing the new market and understanding whether it was dynamic enough to start to be worthy of a startup idea. And then I think the other thing that we were good at on the marketing side, or at least I was, was getting the world excited about it. So once we decided to go after it, how do you tell an exciting growth story and get customers and the press and the industry and the chattering class excited? The thing I really was bad at was more the operational stuff. I’m not very organized. I’m not especially good at prioritizing. So I always struggled with focusing on two or three things I had to do that day. Fortunately, we had other founders who were good at that, because they would literally just have to grab me by the shirt every day and just say, “You’re doing this.” That was always a challenge for me and still is.

Matthew: So what’s the most important lesson you’ve learned since launching Motive, and how has that translated into your success at FLOODGATE?

Mike: Yeah. I think that the number one thing I learned is that you’ve got to be in a great market, and Motive did well. I mean, it got public, but it wasn’t in a spectacularly great market. There was a company across town called Vignette that most people thought was not as well managed as Motive, and I actually don’t even think Tivoli was as well managed as Motive. But those two companies had better markets than Motive did, and so I’ve just seen time and again as an investor, every company that we’re invested in is screwed up in some way or another and people talk about the ones that didn’t work as the ones that made mistakes. Everybody’s making mistakes. So what I’ve learned is that a great market will just pull a startup to greatness. Some markets are so great that you can’t shake the customer off with a stick, and the company is just destined to succeed. Having a great market in my view is a pre-condition for success.

Matthew: What was the most difficult challenge in starting FLOODGATE, and how did you overcome this obstacle?

Mike: Yeah. There were three big challenges to starting FLOODGATE. First of all, I had just moved to Silicon Valley from Austin, Texas, so I didn’t know anybody. The second challenge was I’d never made a private investment in my life. So I had never made an angel investment at all. And then the third thing was I didn’t understand the consumer Internet. So I would go to people and say, “Well, I’ve got this hypothesis that there’s a gap in the market and somebody could start a venture firm to invest a million dollars at a time on these angel deals on steroids on the consumer Internet,” and people would just look at me like I was smoking crack right there. It’s like, “You don’t know anybody here. You don’t know the consumer Internet. You’re not an investor. Who the heck are you? You’re just some washed up enterprise software guy from Austin, Texas.” I was like, “Yeah, but other than that, it’s a great thesis.” Fortunately I was able to have some beginner’s luck and then talk some people into giving us a shot.

Matthew: So it almost sounds like you took your own advice that you give to founders in demonstrating traction by placing your own bets.

Mike: Yeah.

Matthew: And then people started to recognize, wow, Mike actually has an eye for this.

Mike: Yeah. And I also, I wasn’t all that interested in the fact that people said I was wrong. I would have been interested if people said I was wrong if I disagreed with the logic of what they’re saying. But in my view, you’re right when you’re right on the facts, not based on who agrees with you and who doesn’t. So I just knew I was right on the facts. I could see the entrepreneurs, just my spidy sense was tingling that there was something fundamental happening and not just in terms of a finance opportunity but the way innovation was becoming democratized. The venture firms had gone down the path of raising really big funds. So it was very hard for them to see that trend in the early days. To me it was just obvious. It wasn’t a question. Entrepreneurs, I like to ask, “Are you still going to do this if you can’t raise the money?” If you really believe in the idea, you will. You’ll just assume that the dots will forward connect someday and you’ll just keep doing it. So that’s what we did.

Matthew: What bit of advice or piece of information do you wish you would have known before you started FLOODGATE?

Mike: Actually, I’m glad I didn’t know as much as I did. In both cases, in the case of Motive, I didn’t realize how hard it would be, and in the case of FLOODGATE, I didn’t realize how long the odds are. I’m not sure being well informed about the odds would have helped me. I think it might have scared me off a little bit. So I’m actually kind of glad at the level of ignorance I had.

Matthew: So ignorance is definitely bliss.

Mike: Yeah, and by the way, now most people think that being in the seed space is hot. I think it’s a terrible time to start a seed fund. I think most people are going to get their butts kicked because it’s just too obvious and too oversupplied. But back then, I didn’t know how long the odds were. But that was kind of good. But then again, it wasn’t oversupplied. So just ignorance was bliss in a lot of ways.

Matthew: What mentor has played an impact on your professional development, and has there been an individual or mentor that has helped you in launching Motive and in launching FLOODGATE?

Mike: Yeah. Well, the guy that helped me a lot at Motive was this guy named Scott Harmon, who was one of the co-founders. Scott’s just a great marketing guy, and Scott really taught me the value of playing offense in the marketplace, about the winner is the person who frames the discussion that occurs in the market and causes everybody to talk in terms of their language and in terms of their rules. I call it air wars marketing. If you win the air wars that a lot of things follow. So I think that we did a good job of that at Tivoli. We did that against CA. We positioned them as mainframe guys that didn’t get it. We were the good distributed guys. At Motive, I think we did a good job of talking about the tyranny of the telephone and tech support. At FLOODGATE, I think we a pretty good job of talking about how innovation has been democratized and there is a new model that aligns with a new type of innovation, lean start-ups and all that.

So I would say that Scott probably taught me more than anybody career wise about that. Katherine Gould and Dave Marcourt taught me a lot about investing. What they taught me was that if you’re going to be a great investor, you can’t just be a good builder. You have to be a good buyer. You can’t count on the fact that you can make the success happen. You’re betting on the team and the people that formulated the idea. So you’ve got to be willing to run the thought experiment of, “If all I can do is give this company money and nothing else, would I still do this deal?” If the answer is no, you ought to take a long hard look at why the answer is no and is it worth taking that risk? Being a good seller, or being a good builder versus being a buyer are pretty orthodinal skills.

Matthew: That’s a very good point you made there. What advice would you like to share with our audience about launching a startup? If you have to distill it, what do you think are the key elements?

Mike: Yeah. The thing that I care most about is the value being different. The biggest problem I saw at Silicon Valley when I first came out here was just the continuous tendency towards mindless competition. I see pitch after pitch where you see a check off matrix, and it’s like I have ten checks and the other guy has eight checks and somebody else has three and somebody has seven. I tend to like companies like Smule, where they come out with Ocarina that turned your iPhone into a flute or something like that. When you look at the product, it’s the first example of its kind ever to do something. So the thing that I try to talk entrepreneurs into is always recognize the opportunity to be different rather than better. You know, better requires you to out execute, whereas different requires you to out innovate. Innovation and difference is the asymmetric weapon of the startup, whereas execution is the unfair advantage of the other guy.

Matthew: What are your next steps for FLOODGATE and your pursuits as an investor?

Mike: Yeah. Well, I guess the fundamental belief that we have is that innovation is becoming democratized in a very fundamental way. If you look in the past, there have been management revolutions throughout history. There was the steam engine. There was Eli Whitney and the cotton gin. There was Alfred Sloan and the modern corporation. There was Frederick Winslow Taylor and mass production/manufacturing. There was Toyota and lean manufacturing. So we believe that the collapsing of cost to innovate and the empowerment of the creative class is a revolution as important as Alfred Sloan and General Motors and the modern corporation. So we believe that there will be people who recognize that trend and create financial innovations that are in alignment with that new set of reality. The guys that do will win. So my hope is 20 years from now people will say FLOODGATE was the firm that defined that model of investing and just fundamentally helped engender the shift towards this new type of innovation.

Matthew: Excellent. Well, Mike, it’s been a pleasure having you as a guest on FounderLY. We’re rooting for you’re continued success at FLOODGATE. We hope you’ll come back as a guest in the future. For those in our audience who’d like to learn more about Mike Maples and FLOODGATE, you can visit their website at www.floodgate.com. This is Matthew Wise at FounderLY. Thanks, Mike.

Mike: Cool. Thanks for having me.

 
 

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