20VC The Lyft Memo Floodgate's Ann Miura Ko on Why Successful Seed Investing Is Not Investing In a Company But The Development of a Set of Secrets, Whether Capital Is a Defensible Moat Today &How Startups Should Approach Competition

In this episode of 20 VC, host Harry Stebbings revisits a conversation with Anne Muir, co-founding partner at Floodgate, discussing her journey leading the investment round for Lyft and the company's evolution. Anne shares the story of Lyft's origins, from a recommendation by Taskrabbit's founder to the pivotal moment when Lyft's model proved successful. She highlights the founders' commitment to customer development and the importance of a company's core vision and values. Anne also touches on the challenges of financing in competitive markets and the role of capital as both a tool and a potential pitfall. The discussion encapsulates the strategic decisions, cultural development, and leadership growth that have shaped Lyft's trajectory from a small startup to a public company.

• Harry Stebbings welcomes back Ann Miura-Ko, a co-founding partner at Floodgate.
• Ann has led investment rounds for companies like Lyft and has been recognized on the Forbes Midas List.
• She is also a lecturer at Stanford, a codirector of the Mayfield Fellows Program, and a board member at Yale University.

"Today's guest I had on the show five years ago, if you can believe it, and I've wanted to do this episode for a long time and so I'm thrilled to welcome back to the hot seat Ann Muira, co-founding partner at Floodgate."

The quote indicates the return of Ann Miura-Ko to the show after five years and highlights her significant contributions to the venture capital industry and academia.

• Harry Stebbings promotes products and services such as the Pod Pro by Eight Sleep, NordVPN, and Diligent.
• These products offer solutions for thermoregulation during sleep, secure internet browsing, and modern governance.

"The pod pro, though by eight sleep, is the most advanced solution on the market for thermoregulation."

This quote is part of an advertisement for the Pod Pro mattress, emphasizing its advanced features for improving sleep quality.

• Ann Miura-Ko discusses how she was introduced to Lyft's founders, John and Logan, through Leah Busque of Taskrabbit.
• The introduction occurred due to the founders' shared time in a Facebook incubator or accelerator.
• Ann had previously funded Leah's company, Taskrabbit, in 2009.

"The way we met John and Logan was that Leah Busky, who's the founder of Taskrabbit, had been in the Facebook incubator or accelerator at the same time as John and Logan."

This quote explains the connection between Ann and the founders of Lyft, highlighting the importance of networking and founder recommendations in venture capital.

• Ann recounts her first meeting with John and Logan while she was pregnant and starting her VC career.
• She and her partner Mike were subleasing office space from another VC firm at the time.
• Ann was drawn to the founders' passion for transportation and their understanding of its societal impact.

"What was great about it was we were also just starting up on our career... And so at this moment, we sort of come together."

This quote reflects the early stages of both Ann's venture capital career and the founders' journey with Lyft, emphasizing the synchronicity of their ambitions.

• Ann explains the inspiration behind Zimride, Lyft's precursor, which was based on transportation sharing in Zimbabwe.
• Logan had been passionate about transportation since college, and John was influenced by how transportation shapes society.
• Ann and her team were interested in the market insight and the potential for innovation in transportation.

"And Logan says, I was in Zimbabwe. I was really passionate about transportation... And it's crazy to think at the time, but we hadn't seen a transportation startup."

This quote provides context to the origins of Zimride, revealing the personal experiences and societal observations that led to its creation.

• Ann discusses the pivot from Zimride to Lyft as a gradual process over years, not a singular moment.
• She describes the various iterations Zimride went through, including efforts to increase activity density and experimenting with payment for transportation.
• Logan's hands-on approach, such as driving a van to LA to test the market, exemplified their commitment to customer development.

"Zimride to lift was a process, not a moment."

This quote encapsulates the idea that significant business pivots are often the result of continuous iteration and experimentation, rather than instantaneous decisions.

• Ann highlights the founders' dedication to customer development and their willingness to engage in "hand to hand combat" to understand customer needs.
• She cites examples of their commitment, such as John Zimmer dressing in a beaver suit to promote Zimride on university campuses.
• This demonstrated the founders' hands-on approach and their belief in deeply understanding and engaging with customers.

"There was an absolute commitment to customer fanatical desire for customer development... They were always so committed to knowing what the customer desire was and how that translated into product for themselves."

This quote emphasizes the founders' dedication to customer development and their direct involvement in understanding and meeting customer needs.## Commitment to Startup Process

• Early-stage investments are about investing in people committed to uncovering secrets, not just the best idea.
• The startup is not a company at the seed stage but a set of insights and a development of secrets.
• Investors seek founders who own the process of discovery and are committed to the journey.

"Again, you're not always looking for the best idea, because at the seed stage, we often say we're not investing in a company because a startup isn't a company. It's a set of insights. It's a development of a set of secrets that you have."

This quote emphasizes the importance of the process and insights in early-stage startups, rather than just a solid business idea. It underlines the investor's focus on the potential for growth and discovery within the startup team.

• Investors ask founders to write up their core beliefs and insights.
• They evaluate founders' steadfast beliefs, understanding of competition, and perceptions of historical changes.
• The speed of developing insights and learning from the process is critical.

"I love to have them even write up some of what they believe. Right. So I love looking at the things that they would let go of, the beliefs that even if the data came in unclear, they wouldn't let go of."

This quote highlights the investigative approach investors take to understand founders' convictions and insights, which are crucial to the startup's potential success.

• Investors resist compressing their timelines despite the trend in fundraising.
• A commitment to thorough evaluation and meaningful investment is prioritized over volume.
• The relationship-building process with founders is essential, even if it leads to missing out on some opportunities.

"I really seek not to have my investing timeline be compressed. If a founder wants to find just a check, we're probably not your gal or guy, because we don't make that many seed investments."

This quote reflects the speaker's philosophy of taking the time to build a relationship with founders and make informed investments, rather than rushing the process due to external pressures.

• Lyft experienced a clear moment of product-market fit upon launch in 2012.
• The company's pivot from Zimride to Lyft involved difficult decisions and a shift in resources.
• Founders' conviction in the new model was a driving force behind the transition.

"When Lyft launched in 2012, I remember one of our associates literally running into my office, and this guy, Tommy leap, he says, you would not believe how amazing this product is. Like, Lyft is going to be huge."

This quote captures the excitement and the transformative moment for Lyft, indicating a strong product-market fit that was immediately noticeable and ultimately led to the company's pivot.

• Lyft's founders faced skepticism about being too nice and not competitive enough.
• The company succeeded by defining its own game and changing the rules of engagement.
• Lyft focused on its identity and mission rather than direct competition.

"What I found with Lyft and John and Logan in particular is you can be, you can be an ethical person, you can be a nice person, and you can be fiercely, fiercely competitive."

This quote challenges the notion that niceness and competitiveness are mutually exclusive, showcasing Lyft's approach to building a competitive yet ethical company culture.

• Lyft's early strategic decisions focused on market expansion and anticipating competition.
• The founders had to prioritize resources and decide when to pivot fully to the new Lyft model.
• The decision-making process involved balancing current revenue streams with potential growth opportunities.

"I remember within a few months, we had to make a decision. Do we divert basically 90% of the resources to Lyft?"

This quote reveals the strategic crossroads Lyft faced and the high-stakes decision to prioritize the Lyft model, which was critical to the company's future success.## Market Expansion and Competitive Strategy

• Lyft's market expansion strategy focused on scaling city by city, understanding each market's unique dynamics.
• The company started in San Francisco and gradually expanded, launching 24 markets by 2014.
• Market expansion was meticulous, with the team learning and adapting to the differences in each new market.
• Ann Miura-Ko emphasizes the importance of founders not rushing to go national but instead focusing on making each market work.

"So for a while, it was just this focus on, let's get this thing right now. Let's get LA right?" This quote highlights the deliberate pace of Lyft's expansion, focusing on perfecting service in one area before moving to the next.

"And it took a long time for these companies to get to that stage." Ann Miura-Ko points out that rapid national expansion is not typical for startups and that Lyft's gradual approach was strategic.

• Key metrics for market success included the estimated time of arrival (ETA) for drivers to reach riders.
• A short ETA indicated a well-functioning market with balanced supply and demand.
• Ann Miura-Ko stresses the importance of marketplace liquidity and the right supply-demand dynamics as indicators of success.

"I mean, ultimately, we were always looking at ETA." This quote emphasizes the importance of the ETA metric in determining the success and efficiency of a market.

• Lyft faced intense competition from Uber, especially during 2014-2016.
• Competition affected financing strategies, with fewer investors willing to write large checks and a pressure to choose sides.
• Ann Miura-Ko discusses the challenges of fundraising in a competitive environment and the importance of focusing on differentiators rather than just competing head-to-head.

"There were moments where I think Lyft had just a few months of cash left." This quote reveals the financial pressures Lyft faced due to competition and the urgency of securing funding to continue operations.

• Ann Miura-Ko argues that capital is critical but cannot replace strong leadership and the continuous problem-solving required for success.
• Throwing money at problems is not sustainable, and entire markets can fail due to misdirected capital.
• Capital efficiency is beneficial for employees as it reduces dilution of their shares.
• Founders should focus on creating a compelling narrative and achieving product-market fit without relying solely on capital.

"Capital has become a really important component, but I just don't think it replaces the fact that if you don't have founders and leadership that's willing to figure things out consistently, you're wasting money." This quote suggests that while capital is necessary, it is not a substitute for effective leadership and strategic problem-solving.

• Founders may feel pressured to raise capital if competitors are doing so, especially for talent attraction and scaling.
• Ann Miura-Ko advises founders to be mindful of how they spend capital and to ensure they have genuine product-market fit.
• Capital efficiency is highlighted as an important factor for both company success and employee benefit.

"The truth is, great companies don't necessarily get built on the back of ton of capital." Ann Miura-Ko challenges the notion that large amounts of capital are the primary driver of a company's success.

• Ann Miura-Ko believes that the best founders do not need venture capitalists to help them attract talent.
• VCs can offer credibility, network, and an external perspective, but the founder's vision and narrative are key to attracting talent.
• Venture capitalists' main role is to provide strategic insights and help identify signs of product-market fit.

"At the end of the day, I think most of the time where a venture capitalist who has views on a lot of different companies have seen journeys for tens, if not hundreds of companies." This quote emphasizes the value venture capitalists can bring through their broad experience and external perspective.

• The conversation touches on the evolution of founders from startup phase to leading a public company.
• Ann Miura-Ko reflects on the development of Lyft's founders, John and Logan, and their growth as leaders.

"Well, I mean it's really amazing." Although the transcript is cut off, this quote suggests that Ann Miura-Ko is impressed by the development of Lyft's founders over time.## Founders' Evolution and Learning Curve

• The founders of the company experienced significant change and growth, transitioning through numerous roles as the company expanded.
• Their adaptability and continuous learning have been remarkable and considered a rare occurrence.

"The change and the learning curve that they have had to be on and they still are on. It's fantastic to see."

This quote highlights the impressive and ongoing evolution the founders have undergone, adapting to the company's growth and the various roles they've had to fulfill.

• The company had several inflection points, including pivotal moments of change like a pivot in their business model.
• The intense competition over several years shaped the company's trajectory.
• Transitioning to managing a public company presented a distinct set of challenges and opportunities.

"There's like the moment that they have to pivot. I think that was probably a big inflection point."

The quote emphasizes the significance of the pivot as a critical juncture in the company's history, altering its path forward.

• The founders' personal lives evolved alongside their professional lives, marked by milestones such as marriages and parenthood.
• Observing these personal developments provides a unique perspective on the founders' journey.

"You also get to see the life changes. Like, when I met them, they weren't married and now both of them have kids."

This quote reflects on the personal growth and life events of the founders that have occurred in tandem with their professional endeavors.

• Initially, the investment was made with the belief that Facebook Connect would foster trust in the network.
• The assumption was that this feature would be a key driver for their "Airbnb of transportation" model, which proved to be incorrect.

"The thing that we were betting on was the Facebook connect, to be honest."

The quote indicates the initial investment hypothesis, which centered on the integration of Facebook Connect as a trust mechanism for the service.

• Being distinct and true to their identity was a key strategic approach.
• The company's guiding North Star, rather than a single decision, was most impactful.

"I think the most impactful was the decision to be different."

This quote conveys the importance of the company's commitment to differentiate itself and adhere to its core values as a strategic priority.

• The founders' clarity of vision and consistency in their values shaped the company's culture.
• The company's original vision and values have remained unchanged, serving as a guiding principle.

"I think in many ways, the founders are the culture."

The quote suggests that the founders' principles and consistent vision are the bedrock of the company's culture.

• Kristen S. Vercheck, a key legal advisor, played a significant role in the company's success.
• Her advocacy for ethical business practices proved to be beneficial for the company.

"There was this moment where she said, why is it important for us to always do the right thing? And she paused and she said, because it's good business practice."

The quote highlights Kristen S. Vercheck's influence on the company's ethical stance and her contribution to its success, emphasizing the value of integrity in business.

• Early days of resourcefulness, such as holding board meetings in borrowed university space.
• Personal interactions with the founders, like the dinner where a Lyft driver met them, creating a memorable and personal connection.

"And to see that moment over dinner at my house, it was this thing where I was like, wow, this is pretty incredible."

This quote recalls a poignant memory that illustrates the human aspect of the founders and their connection to the company's community.

• The discussion reflects the strong relationships and personal connections formed in the industry.
• The speaker expresses gratitude for the opportunity to engage with influential individuals like Ann Miura-Ko.

"What an incredible person and member of our ecosystem."

The quote acknowledges Ann Miura-Ko's significant contributions to the ecosystem and the value of the relationships built within the industry.