Missionaries Don't Sell Early
How to uncap your upside in venture capital
I wrote a post a few months ago that outlined my investment thesis fairly well, with the overall essence being that investors should invest in missionaries. It’s common knowledge that investing in missionaries is good because they are resilient, won’t give up, and will persist until they find success. With that said, I do think there is an element here that’s rarely discussed but could be an even more important reason to invest in missionaries; They don’t sell early.
We all know companies that sell too early and people often wonder what they could have been if they stayed private longer. Reddit comes to mind, as they were acquired years after launching for $10M. On the contrary, Snapchat walked down a very different path, having denied a $3B acquisition offer from Facebook, only to execute flawlessly and create value far beyond that price tag as a public company. What is the difference between Alexis Ohanian/Steve Huffman (Reddit) and Evan Spiegel (Snapchat)? The former were mercenaries and the latter is a missionary.
Why do people start companies?
When someone starts a company, they usually have one of two primary motives. They either are driven by a mission or they are driven by an external outcome. In general, I split these characteristics up into two categories; missionaries and mercenaries. When a missionary starts a company, the world is their blank canvas and they won’t stop until it looks exactly how they want it to look in their brain. No amount of money can stop them from achieving their mission. On the contrary, mercenaries usually have an outcome in mind, often linking to fame or fortune. Once fame or fortune is realized, there is less motivation to persist and aim for bolder horizons.
Two Exit Scenarios
If you have a mercenary who’s put in five good years at a company and gets a $75M acquisition offer, they’ll likely take it. They’ll make more money than they’ve ever dreamed of, they’ll be able to tell their college buddies that they sold their startup, and they’ll have a line of investors ready to fund the next thing as a repeat founder.
Unfortunately, a $75M exit doesn’t really get it done for a VC and their limited partners. VCs need billion-dollar exits due to the power law in the industry. This exit is a situation where a VC may ask their partners “what could have this been if they just stayed in the game longer?”. It often feels like a missed opportunity. The founder doesn’t feel this way though, as they get everything they ever dreamed up when they started; fame and fortune. Mercenaries…
Missionaries, on the other hand, operate quite differently. For them, they stop when the problem they are working on is solved. They stop when the world looks the way their vision looked when they started the company. And they will go through extreme measures, sometimes irrational measures, to make sure their vision comes to life. This is why when a missionary gets an offer to buy the company, they don’t evaluate the decision based on the offer price.
They look inward and they ask themselves “did we accomplish the mission”? If not, then the answer is no (assuming the board doesn’t disagree). If the VCs funded the founder to make their vision happen, chances that there will only be an exit event either when it IPOs or when a multi-billion dollar offer comes onto the table. And even then, they will ask themselves the same question, as Evan Speigel did.
There are now two incredible reasons to invest in missionaries. The first one is that you know they won’t give up until they figure out how to get to product-market fit. The second one is that if they do find product-market fit, you know they won’t sell until their vision is realized, which is where most of the value in venture is created anyway.