Thoughts on “non-consensus right”

25 March 2010 | 3 Comments

A r ecent TechCrunch article about the launch of Floodgate, a seed-stage investment company run by Mike Maples and Ann Miura-ko, highlighted Maples’ approach to investing: he looks for ideas that are “non-consensus right.”  While every investment has to be “right” otherwise it won’t work out (pretty logical…), not every investment firm/VC looks to be non-consensus.  Indeed, the stories of VCs asking entrepreneurs what other VCs are saying abound.  It’s widely believed that a herd mentality prevails in the VC community.  As Ann Miura-ko notes in the video below, the number of Groupon and Gilt Groupe copies are staggering.

I wrote a few months about a talk by Reid Hoffman where he talks about the nature of early-stage investing.  He comes to the same conclusion (with only slightly different vocabulary): one needs to be an “accurate contrarian theorist” to be a successful entrepreneur or venture capital investor.  I wrote then:

Reid posits that an entrepreneur (and therefore venture capitalists who back them) need to pick something others don’t think is viable, that is unique – in other words one needs to have a contrarian theory.  It helps if the theory is correct at first (lucky!), but accuracy can be honed through iteration on the idea as the entrepreneur finds product/market fit .

While being right makes you money, it appears being non-consensus and right makes you even more money.

This type of thinking is commonplace in public equity investing, where millions of eyes analyze the valuation of shares and company prospects every single day.  With an extremely high level of competition, investors need an edge to get a non-contrarian view on the world or the prospects of a particular company.  It’s great to see it seep into the venture capital world in a slightly different form as well.

  • http://rafaelcorrales.blogspot.com Rafael Corrales

    This is very true. The big assumption, though, is not so much being “non-consensus right”. It's the second part that you mention: you have to be accurately non-consensus right. Which means you should write a post about what that means, because Ann and Mike base it on one set of criteria and other investors base it on something else.

  • Kyle

    I don't see much difference between “accurate contrarian theorist” and “non-consensus right” — I think they both mean the same thing except Hoffman's theorist part adds a subtle twist that you will be theorizing and iterating to come to the right solution. Maples has the same view and said that in the video, something along the lines of “we expect our companies to pivot”.

  • http://rafaelcorrales.blogspot.com Rafael Corrales

    Somehow I left a comment here, forgot about this post, and then managed to write this three weeks later:

    http://blog.rafaelcorrales.com/2010/04/non-cons…