Why we invest in people AND ideas

By January 9, 2015Forward Partners

This Tweet from our friend Nilan Peris in my feed this morning led me to re-read Paul Graham’s essay from December: How to be an expert in a changing world. The main point is that in a world of accelerating change predicting the future is very hard and the most important thing is to retain an open mind and not get stuck with obsolete beliefs. The secondary point is that human nature is relatively constant and therefore easier to predict, particularly with experience. That leads to the conclusion that it’s smarter to bet on people than to bet on ideas.

Here at Forward Partners we bet on people AND ideas. We look for great founders, but will only invest if we also believe in the idea.

Nilan’s tweet and re-reading Graham’s essay made me think again why we do that. When I boil it down there are two reasons:

  1. Whilst predicting the future is hard, predicting whether an ecommerce idea will gain traction in the next couple of years is a tractable problem. Even at day zero we can get an idea of the market size, likely price point, margin potential and competitive dynamics. We do this mostly by looking at consumer behaviour and at substitute products. I wrote more about this when I explained Why we are stock pickers.
  2. Post investment we work extensively with our partner companies, especially with our idea stage partners. We have 13 people in Forward Partners and only 3-4 of us are on the investment side. The bulk of the team spends all day every day with our partners and that wouldn’t work if we didn’t believe in the idea as well as the entrepreneur.

Narrowing from the general case to compare us with Y Combinator the other difference is that we make much fewer investments – 8 per year compared with over 100. That gives us much more time to think about each one.