Investing in the earliest stage of startups is difficult. At the stage we see companies, it is often with incomplete ideas, incomplete teams and incomplete business models. While we try our best to predict the future, we are often wrong.
Yesterday Business Insider published a story about "How Twitter Was Founded" that discussed the history of Odeo and Twitter. First Round Capital was an investor in Odeo -- and I blogged about it almost six years ago when I wrote:
The reason I invested in Odeo in the first place was because I wanted to make a bet on Evan – and his recent actions have shown me how right I was. I continue to be a huge “Evan fan” – and should he decide to raise outside capital again, I hope to be his first phone call.
After Odeo, I kept in touch with Ev and Jack. I was an early user and big fan of Twitter. And we offered them a term sheet to fund Twitter in April of 2007 (I believe it was their first). They turned it down because Ev wanted to keep self-funding the company. A few months later, when they had term sheets for their Series A round, Ev asked us if we wanted to participate. And I declined -- mainly because the pre-money valuation was 4x larger than the terms we offered them a few months prior and 2x larger than any other investment we had made. Big mistake.
We learned a lot from our mistake with Twitter. While we still believe that valuation matters (and more on that in another blog post), we learned (1) how important a really strong team is , (2) that real market traction is worth a premium. Thankfully we were able to apply those lessons when Jack founded Square and let us invest in his first round (at what the time everyone thought was a premium price -- but today seems like a bargain).
The venture business is humbling business. Every firm has their "anti-portfolio" -- but few publish them. We have our woulda coulda shoulda list - and Twitter is amongst the top companies (alongside Dropbox and Zynga).
When Nicholas Carlson called me for his story about Odeo I chose not to participate -- and told him I would prefer not to have the story published. Not because Ev made any mistake. But because I did. I passed on Twitter. And if that story was going to be told publicly – I wanted to be the one to do it.
Ev has been nothing but straightforward, honest and direct with me. I think he deserves all of his success. I stand by everything I wrote in my blog post from 2006. And if Ev does end up starting a new company, I still hope to get a call from him. I promise I won't blow it this time :-)