When ‘Boring' Is Good — Advice From A Fintech Investor

What do a very young Tiger Woods and catching a favorite episode of Seinfeld on TV have in common? To Alex Rampell, a general partner at venture capital firm Andreesen Horowitz, both are metaphors that illustrate some basic truths about the startup world. 

Rampell learned these lessons through his two decades of experience as a successful entrepreneur and investor. Walker & Dunlop CEO Willy Walker asked him to share some of his experiences and insights into the tech investing world as his guest on this week’s Walker Webcast. 

Rampell holds a BA in applied mathematics and computer science from Harvard University and has co-founded companies including Affirm, FraudEliminator, Point, TrialPay, TXN and Yub. At Andreesen Horowitz, he focuses on financial services, and also serves on the board of numerous companies, including Divvy, Super Evil Megacorp and Very Good Security.

But it all began in college, when Rampell was selling software on the internet from his dorm room. 

“That seems kind of mainstream now but in the '90s this was not really a mainstream thing,” Rampell said. “Ironically, it made it much easier to do because you were not competing with a field of millions and millions of software developers around the world.”

The tech world has gotten much more complicated and competitive since then. Rampell had some advice to help people separate the wheat from the chaff when it comes to new financial technology businesses. 

On the investor side, he said, people need both empathy and a “grounded understanding of how the world works.” In particular, this means understanding that a business isn’t neatly defined by an Excel file.

“I think a lot of investors, if they have just looked at spreadsheets and they haven't actually operated a business, they don't understand what it takes to actually turn a strategy into an actual thing,” he said.

Running his own business straight out of school, Rampell learned that success is more than a number on a spreadsheet. Say a key person leaves the team — that can have a profound impact on a startup’s momentum that a casual observer might miss.

“I remember I was having a bad day and was having lunch with one of my investors — and he had been an entrepreneur before — and he just gave me a big hug,” Rampell said.

To Rampell, that simple human gesture was his investor’s way of acknowledging the emotional roller coaster that most entrepreneurs are riding, particularly in the early days of their startups.

“If you build a company and you take it public, that's the greatest feeling in the world,” Rampell said. “It's like you beat everybody, all the doubters, and you have built something of value. It's financially rewarding, it's psychically rewarding, everything about it is great. But if things go in the opposite direction — that is not fun.” 

That is something he said he keeps in mind when he invests in other companies today, but he acknowledged that it is an approach that can catch flack from people who may not see what he sees in the startup.

“We'll invest in a company at a $100M valuation and the press will say, ‘That's insane, they only have $10K of revenue,’” he said. “But we believe in this team. If it works in five years, or 10 years, this could be huge, and we can make 10,000 times your money.”  

Rampell, a sports enthusiast since his student days, located a fitting metaphor for this approach on YouTube.

“I found a video of Tiger Woods when he was 2 years old, and he hit a perfectly straight drive, but it only went like 25 yards,” he said. “There are two ways of looking at this video. One is like, ‘Hey, I'm 40 I can hit a drive much further than that little kid.’ But the other is, ‘Wow, if that kid keeps it up, he could win 15 majors.’ Both of them are true, but in a venture mindset, you have to default to that latter category. You can't judge it on the present, because judging something on the present is an extraordinarily easy way to never win.”

Not that investors should let themselves be dazzled by a flashy new idea. In fact, Rampell said he likes to see that a new business has mastered the “boring parts” first. This can include distribution, which in a streaming world, is key to the success of any new idea. To ignore the boring stuff is to risk falling victim to what he called the “TiVo problem.”

“TiVo really revolutionized how humans operated at the time,” he said. “Before, it was like, ‘I’ve got to get home at 9 p.m. on Thursday to watch Seinfeld.’ And now I can pause Seinfeld and come back to it later. Great idea, but the problem was that they didn't own the distribution, and distribution was the cable companies. And eventually those guys said, ‘You know what, we already have all the customers, let's just roll out our own crappy version of TiVo, and charge less than TiVo and then TiVo dies.”

Rampell said he has seen many other companies fall into this trap.

“This is what happens time and time again with businesses that don't understand the importance of distribution,” he said. “Like most entrepreneurs, they focus on ‘I have a great idea for a product.’ But it's not the product that's the best that wins. It's the product that actually figures out distribution.”

On Feb. 23, Walker will interview Tom Gardner, CEO of The Motley Fool. Check here for updates.

This article was produced in collaboration between Studio B and Walker & Dunlop. Bisnow news staff was not involved in the production of this content.

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