This week, Cory speaks to venture capitalist Niko Bonatsos, who is well known for being a managing director at General Catalyst, a multi-billion dollar venture capital firm where he was instrumental in the investment in Snapchat. In this weeks episode, Niko tells us about how he went from being an entrepreneur to a VC, the behind the scenes details on meeting Snapchat and what happened in the initials meetings that’d lead to being one of the most lucrative investments in the firm. He also gives us what metrics he looks for when evaluating a startup and he tells us which side of the Bitcoin debate he’s on.
When Niko Bonatsos (@Bonatsos), Managing Director of General Catalyst, started in technology, he didn’t consider becoming an investor because he was too focused on trying to build his social networking company. “I wasn’t looking to become a venture capitalist. I ended up becoming one because my startup failed,” says Niko, who talks with entrepreneur Cory Levy on this episode of OFF RCRD.
Niko was able to turn this failure into an opportunity to identify startups worth investing in. He was one of the first employees at General Catalyst, which is now one of the top 10 VC firms according to InvestorRank. One of the early deals that helped get General Catalyst to where they are now, led by Niko, was an investment in Snapchat.
When working with other investor groups to raise funding during the early days of Snapchat, investors were skeptical, to say the least, according to Niko. “All of them would think, ‘Oh great, this is about sharing dick pics and sexting with your friends.’”
While investors were worried about inappropriate pictures didn’t help to fundraise, Niko thinks controversy is “great.” “It’s actually a gift. If you leverage it over short periods of time and you graduated from it in order to jump into a new set of controversy for a new customer segment,” says Niko. “Basically, the reason why I like controversy in the early days of a newly launched product is that it amplifies word of mouth. A young startup that launches a product frankly does not have the resources to do paid user and customer acquisition.”
However, Niko warns against being controversial for the same reason and same set of users for an extended period of time. “If you are, your users and customers will demonstrate fatigue, and they’re going to be like, ‘Oh, my god. This company doesn’t get it.’ Or, ‘This company’s a waste of time.’” Snapchat was able to grow past this controversy quickly, in large part due to their team’s leadership, which Niko knew from the beginning had the ability to successfully build the company.
Asked by Cory “How do you find the diamond in the rough?,” Niko said, I’m very enthused about partnering with founders who have nothing else to do. They are grinders, the problem their solving is their life. If I try to change the topic and talk about giants or Bitcoin or anything else, they’ll just shift the conversation back to the product they’re building.” To find these types of entrepreneurs, Niko doesn’t focus on pedigree or even relevant experience. “Amazing talent can come from anywhere…If they’re given opportunity, they can shine,” said Niko, who also stated that he looks for “learning animals.” “They’re not domain experts in what they’re doing today but, if we put them in the room with a fortune 500 CEO of that particular industry that they’re in, that person will be intimidated by the knowledge of the first time founder.”