Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate (Part 8)

By guest authors Irina Patterson and Candice Arnold

Irina: How do you conduct your due diligence?

Mike: That’s the hard part because Ann and I are little bit emotional in our investing styles. We believe that the greatest outcomes tend to be controversial when they’re funded. For example, Twitter was very controversial when it was funded because it didn’t have a revenue model. People were saying, You’ve got to be kidding me . . . 140 characters or fewer, no road map, no business model, they can’t keep the site up, what are you thinking?

And then this other company, Chegg, the textbook rental company, it took us two years to get VC funding for that company because nobody believed that students would rent textbooks. And even when they started renting them, they didn’t believe our numbers. And I was like, What are you talking about you don’t believe our numbers?

It’s funny how a lot of our best investments at the time were the ones that probably could not have gotten done in the context of a big firm because there would have been too many reasons to have an objection. If you’re coming at it the other way; if you’re coming at it like you’re an idealist, then you say, Okay, well, there are a lot of reasons why this might not work, but if it does work, could it be really big.

We know that most of the times we’ll probably be wrong, but the times we’re right, the results will be so spectacular that it will trump the times that we were wrong. You have to be really convinced that if things go right, that the company is doing something fundamentally meaningful that will turn into a big business.

I’ll give you an example of a company we’ve done recently. It’s a company called Wordnik. They’re trying to capture all the words in the world and all of their meanings and put them in a platform that’s accessible via APIs.

How does that company make money? I’m not sure, but it was started by the head lexicographer for the Oxford American Dictionary. And she believes paper is the enemy of words and she already has a dictionary that has more than ten times the words of any dictionary ever created in humankind.

And I’m just like, You know what, that just sounds meaningful to me. If we find a business model for that that’s compelling, well, we have very little competitive risk, we have proprietary insight of knowledge on how dictionaries ought to work in the Web. I mean, after all, she’s a lexicographer for the Oxford American Dictionary.

We love startups where the entrepreneurs have a very authentic passion for their subjects and where they’re trying to tackle a problem that’s wildly ambitious. Sometimes it’s so crazy that it works.

That’s what gets us excited about coming to work is working with people like that. Like Kevin Rose at Digg, he wanted to change news. The Twitter guys, they thought that if people could blog in a 140 characters or less, that a whole set of people across the world would blog who hadn’t blogged before.

Osman Rashid thought that textbooks were a ripoff and that students were getting hosed by the high prices. The ModCloth people . . . . Susan Koger has been thrift shopping since she was twelve. We just love the companies where the entrepreneurs have a really authentic, passionate understanding of the area and they want to just do something massive.

This segment is part 8 in the series : Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate
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