At the age of 25, Chris Sacca found himself in a strange predicament. He was in debt for a little over $2 million.
It was the year 2000. He had used his student loan to play the stock market and make $12 million. He discovered that the fortunes of traders can change in the blink of an eye when his networth on paper turned into a reality of $4 million in debt. He negotiated a workout plan with his creditors to reduce his total debt. The next year he loses his job. It was sheer tenacity and a refusal to accept defeat that kept him going. He worked day and night, and landed a job at Google.
By 2005, all debts were cleared. A decade later he was a billionaire, found himself on the prestigious Forbes Midas List, and his firm Lowercase Capital boasted an excellent seed portfolio.
The first good bet
Sacca’s appetite for risk and his ability to identify amazing founders led him to be an early-stage investor in companies like Uber, Instagram, Twilio, Docker, Stripe, Lookout, Kickstarter and Automattic (maker of WordPress). And, oh yes, he held more of Twitter at its IPO than any outside investor.
Way back in 2006, his first private tech company startup investment was in Photobucket.
In start-ups, one needs to have implicit faith in the founders –their vision, capability and grit to see it through. While both founders Alex Welch and Darren Crystal were gifted technologists, Sacca personally knew Alex and labeled him as a man who was “savvy, intensely ethical and whom he deeply trusted”.
But it was more than investing in a buddy. Sacca saw a product that stood on its own and required no spin or marketing. He believes that PR can be distracting, full of mindless B-school drivel and often empty adding no concrete value. So despite the fact that Photobucket could have done with some public awareness, Sacca spotted a winner because they were focused on building something cool that users would really dig.
People immediately understood Photobucket. The simplicity of its core application was the cornerstone of its growth and approachability. Despite having deep capabilities, it could be operated by anyone.
His vision was based on two premises.
- Linking is the new storage.
- In the hosted present and future, content is automatically stored.
People were no longer storing in physical photo albums, or floppy disks, or CDs (remember this was 2006). Instead, the next generation was thinking about linking; how they can point to their hosted content and include it on/embed it in MySpace profiles, LiveJournal blogs, message boards around the web, and so on and so forth.
This was all the more fascinating because Flickr was just that much more popular. But Sacca dug into the numbers and saw that while the chatter was more around Flickr, Photobucket was “just blowing it out of the water”. As far as photo-sharing sites were concerned, Experian.com noted that in 2006, Photobucket was leading in terms of market share while Flickr was down at sixth position. Techcrunch.com noted that Photobucket commanded third place among video sharing sites (after YouTube and Myspace) in 2007, after launching the functionality in 2006.
So despite being low on cash, Sacca decided to go for it and utilized a credit card cheque to make it happen. It paid back handsomely.
Sacca’s investing paradigm displays an acute clarity that is evident from the answers he seeks before he makes a call.
- Can the business/product be explained in a simple and concise fashion which could be termed as the Thesis Statement?
- Can the entrepreneur clearly identify the problem being solved or how this is going to enhance the end-user experience?
- What comparative advantage does this have as compared to the rest in the market?
Once that is crossed, Sacca moves on to other filters.
First, his driving force is investing in businesses where he knows he can personally impact the outcome. As he said in an interview: Everyone may be talking of the hot biotech field. And it may be on the verge of finding a cure for cancer. But no matter how cool it may appear, I will pass simply because I cannot do anything to advance its mission.
He will not invest in a company where he does not have the advantage to make it more likely to win. It’s not just companies that need his capital, but those that value his guidance and business acumen. If he can have a material impact on the company that will improve its odds of success, it has its attention.
Second, he works with a good business that has the potential to be awesome. He will not start with crap that has the potential to be good. In his words: “you need to start from something that is already pretty damn good”.
Third, closely linked to the above point, he invests in businesses that are already in production, so to speak. It must have users and can demonstrate that the team is capable of execution. No hypotheticals. No ideas. Though he confessed to making an exception for a particularly gifted entrepreneur he worked with earlier.
Fourth, the caliber of the founders needs to be convincing. He looks for talent. Drive. Boundless ambition. Hustle. If he smells even a tiny whiff of doubt or the founder trying to convince himself of the success of the business and does not believe in it from the very depths of his/her being, then it’s no dice. He partners with those who believe in the inevitability of their success. Not conceit, but confidence in the realization of their vision.
He once commented on how tireless and obsessive Travis Kalanick (Uber) can be when it comes to achieving the goals he sets out for himself. How impressive it was to hear Kevin Systrom (Instagram) talk of 50 million users when the firm was still a one-man show in his infancy. How Evan Williams (Twitter) had the ability to peer into the future and just know that it would be a big thing.
Fifth, he looks for sufficient room to benefit from scale. So he prefers entering at prices low enough so that if the company is successful, he has given himself a chance to get rich.
He has always unwaveringly stuck to his motto: I want to invest in the future and not in the present.
Chris Sacca is not the conventional billionaire (are there “conventional billionaires”?). He flaunts embroidered cowboy shirts. His vocabulary is peppered with expletives (but he is an excellent communicator). His prime means of communication to the outside world is Twitter which does not do justice to his excellent writing skills (I make this statement solely on the basis of having read every single post of his now defunct blog).
Behind that benign smile, the apparent authenticity and good-humored looks lies a wicked sharp mind intense in its focus.
With a fair amount of candour, he frankly admits to times where he could not grasp the founder’s vision and his own common sense proved to be a hurdle. That cost him many millions by way of missed opportunities in AirBnB, GoPro, Snapchat, Pinterest and Dropbox.
But hey, don’t feel bad for him. Remember, he’s still a billionaire.
(To understand his investment process, I have extensively referred to two of Chris Sacca’s blog posts: Hints for proposing deals / Why I invested in Photobucket)
