Nabeel Hyatt Spark Capital
Nabeel Hyatt doesn't look around the corner trying to predict the future. He can only feel it in his gut when he experiences it.
Trying on the Oculus Rift for the first time felt as transformative as the iPhone. Cruise's self-driving car technology made him confront what a future of riding in driverless cars would feel like. When it came to Postmates, he could have Tylenol delivered to his house to quell his son's raging fever. It was magic, he told Business Insider.
The Spark Capital partner is known for making big bets on the future that pay out even bigger. In 2014, Oculus sold to Facebook for $2 billion. This spring, Cruise Automation sold to General Motors for a reported $1 billion price tag. Now investors are scrambling to catch up to the self-driving car movement.
We listen to our heart when we invest.
Hyatt sat down with Business Insider to talk about how he learned to trust his gut — and what he thinks will be the fundamental technology to disrupt it next.
The following Q&A has been edited for length and clarity.
Biz Carson:You’ve had a few hits with predicting what comes next. Oculus was an early win in virtual reality. Cruise, the self-driving car startup, was an early exit and now other investors are trying to catch up. So what’s coming next?
Nabeel Hyatt:Well the glib answer is to go look at the portfolio.
I think one of the reasons this firm has a pretty good track record of finding new markets that others haven’t tuned into is that we’re not market-first VCs. You can have this conversation with most VCs and they’ll tell you the three or four markets they’re investing in right now and 90% plus of venture capital is run that way. It’s market-first investment. And we just don’t believe that which is different than most firms.
We believe that really amazing products can create markets that you can never analyze, that you couldn’t get some analyst to draw an excel spreadsheet. When Santo [Politi, Spark Capital partner] was telling us about Oculus, he wasn’t saying “This is a massive market.” He just said “You have to experience this product".
The Oculus Rift virtual reality headset Flickr When Brendan, the COO of Oculus was in Boston and showing it to our whole team, you could’ve written the narrative that VR was going to be some massive new paradigm of computing and huge, but you could also say it’s some weird expensive peripheral for gamers that 1% of people who like to play hardcore first person shooters are going to get.
Instead, we looked at that experience and said this is the most transformative hardware experience we’ve had since the iPhone, how do you not invest? Of course you invest.
BC:What about something like Cruise where it’s self-driving cars? To me, the goal posts are very long down the road of that coming to fruition, but you’re a venture capitalist and you’re looking for 10 year returns. How do you know that it’s a good bet for venture capital? That it’s not some Jetsons, one-day-we’ll-have-flying-cars idea, but a business that can actually do it?
We have a hard time investing in a founder with three sentences about their company and a good idea, but you can’t experience it yet.
NH: There’s a technical due diligence side. When you sit down with Kyle [Vogt, Cruise CEO] and he paints his vision for the future, from the product side, you want this future to exist. You want to experience it because it will be transformative.
And then you have the question of well, is it going to work? We do spend a lot of time and energy when we’re doing these frontier tech investments, which we’re very comfortable with, to just dig in and make sure it’s possible. That doesn’t mean it’s always there and it hasn’t been for most of these. You can go to Lily and drones, or Thalmic with their first product, or cruise and driving. Like, the first time you put on a Rift it makes you sick after the six minutes. It definitely wasn’t there.
We have to do due diligence but I’d rather place a risk on a really amazing team just getting the last 10% of that product working to make it transformative, then "Hey this team has a really great resume and they came out of a really great company and the demo was just OK, but I think they can make something great over time". Honestly a lot of seed and series A deals feel like that to me when I look at other firms. It’s some guy, usually a guy, who sold a company before, made some money, he’s going after a similar sector and it's like “well yeah, I don’t know if the idea is amazing but he’ll find his way through.”
BC:You mentioned with the Oculus that you put it on and you’re like "This is transformative as the iPhone." Do you have to have that reaction on all these things?
NH: We do. We listen to our heart when we invest.
That creates weaknesses, by the way.
We have a hard time investing in a founder with three sentences about their company and a good idea, but you can’t experience it yet. If we can’t experience what has come out of the hands of the founder, how that idea has manifested itself in a product, then we have a hard time getting behind it.
But what we don’t need, which a lot of other VCs need, is some traction graph, going aggressively up and to the right before we believe. We don’t need that, although it’s obviously good. So we need to have an experience and put ourselves in the mind of the customers before we can really get conviction.