Advice for founders: No. 9 Don’t study outliers

Gilad Avidan just published a list of ten things he wished he known when he founded his company two years ago. Number nine is “Don’t study the outliers”. Studying outliers is a mistake I see made all the time. Hugely successful companies are by definition outliers, they get talked about a disproportionate amount of the time, and worse, the stories written about them are often inaccurate. History gets re-written (usually be accident rather than design) and third party commenters desperate to write a good story when they don’t have the inside scoop are prone to writing that success is down to one thing when it might be down to the another.

As Gilad says, it is much better to study companies which are similar to your own (he says ‘real companies’) and much better to study companies where you know you have an accurate picture of what they’ve been doing.

In a related point, I like investments that have got a good chance of achieving a relatively modest exit – say £30-50m – with a small chance of going on to do much more. and Zeus (both $100m+ exits) and most of my other investments at DFJ followed that strategy and I expect us to do more of the same here at Forward Investment Partners. That way we will put ourselves in good position to get lucky and have a runaway hit fund whilst preserving our ability to make good returns if Lady Luck is looking the other way. I encourage founders to think the same way. It’s better to maximise the chances of a life changing but maybe not headline grabbing exit and hope to get lucky on the upside than to bet the farm on a huge outcome. That’s like putting all your chips on double zero with your first wager.


  • Thomas Oriol

    Hello Nick,

    “I like investments that have got a good chance of achieving a relatively modest exit – say £30-50m – with a small chance of going on to do much more” > That is refreshing! I have heard “we like what you are doing, but we don’t think you are going to be a billion-dollar company” from VCs a few times, and it always struck me as a bizarre investment strategy. I don’t think we will be a billion-dollar company either, but then how many billion-dollar enterprise software companies have emerged in Europe during the past 20 years?

    Your strategy seems much wiser, and indeed I know a couple of top VC firms in London that have been tremendously successful implementing it. But they do seem to be a minority. Is there something in the current VC market that’s gearing investors towards casino-like bets?



  • Without speaking for Nic, VC firms tend to go after the big hits because exits currently follow a power law distribution. One big exit can be worth more than a portfolio full of small or moderate exits, so the goal of many firms is to increase exposure to businesses that have a chance to become that massive success, even if that increases their failure rate substantially.

  • Big funds need big outcomes to move the needle. That’s why they target billion dollar exits.

  • Richard Kelly

    As a founder myself, I can’t help but feel a bit melancholy of the thought of my Startup’s exit stage in the future. I think that’s because I’ve spent over 16,800 hours creating what I hope to be a great milestone in e-commerce. It’d be like selling my child.

    I know your advice is to have a relatively modest exit, Nic and I know when the time comes I’d accept a modest exit, after all it is business. But I can’t help think of the ‘What If’ moment.

    I haven’t got any experience in an exit as this is my first Startup, so I have no stories to share or learn from. But I’ve been grabbing the attention of a fair few inspirational people (I’m not going to mention names but if you read Wired you will know of these people) and apparently that’s because the project is so audacious yet possible.

    IF my Startup becomes successful should I accept an exit opportunity if it were to arise? Should the exit be now whilst the facts and figures are great or should I wait for improvement before considering?

    The sensible option is to exit. But ‘What If’ the exit is too early?

    Surely, I’m not the first person to feel like this?

    Zuckerberg turned down $10m in 2004. By 2005 he was offered $75m. By 2006 that offer grew to $1.5bn.

    I’m not saying that I’m the next Zuckerberg, nor am I saying that what I’m building is worth $billions, but that growth rate within just 3 years is too hard to miss. What if my Startup has an impressive growth rate but I exit too early? I’d have missed out on a great opportunity.

    Knowing what I’ve told you, would you still advise me to have a modest exit?

  • irfon watkins

    Very good advice based on my experience with Coull over the last few years. My advice would be to recruit investors who have been involved or founded companies in a similar position to your own and get the real facts not the PR spin

  • Hi Richard – I am definitely not advising everyone to go for modest exits, I’m just advising people not to bet the farm on a huge exit. When you get your first offer, which will be modest, you evaluate the risk/reward of selling or holding against your objectives and those of your shareholders, and depending on how good the offer is you sell or you don’t. On top of that for very successful companies there is often a middle route available where founders and early investors bank some profit early without selling the whole company.

  • James Penman

    How many deals in the £30-50m range go through a year in the UK for the sectors you’re investing in? And do you have a rough idea for Europe?

  • Richard Kelly

    I quite like the idea of the middle route. Best make sure I’m worth something to achieve such an offer 🙂

  • Great question. I don’t have that data, and deals at this level often don’t disclose valuations, but I would guess 100-200.

    That’s information I would love to have.