#120 Foundation Capital: Reinventing a 27 Year Old Venture Capital Firm | Steve Vassallo, General Partner

About Foundation Capital

“The best product matters, but it is not what defines a generationally important company.” – Steve Vassallo

Steve Vassallo is General Partner at Foundation Capital and author of "The Way to Design." In this episode, we explore what it's like to reinvent a venture capital firm. Foundation Capital was founded in 1995, 27 years ago by Bill Elmore, Catherine Gold, and Jim Anderson. One of the foundation's early claims to fame was that it was one of the first investors in Netflix back in the early 2000s. If you've read "The Power Law," which is an incredible historical overview of venture capital by Sebastian Mallaby, you'll know that Silicon Valley is littered with venture capital firms whose fates have risen and fallen over the years. Very few venture firms survive a single decade, let alone multiple decades.

And those that do survive for decades have to reinvent themselves time and time again, which is exactly why I wanted to interview Steve Vassallo. Over the last 15 years, he's helped reinvent Foundation Capital, turning around lagging performance, investing in entirely new types of businesses and companies. And in the process, he's helped usher in an incredible new era at Foundation Capital.

This episode is our definitive guide to reinventing a venture capital firm. In it, we cover Steve's early years bringing design, product, and engineering together at IDEO, and what that taught him about building successful products and companies, the early warning signs he saw that made it clear Foundation Capital needed to be reinvented, how Foundation rediscovered who they were and who they wanted to be as a team, how they changed the way they operated and made investment decisions to giving partners more latitude to invest in the ideas they thought could be massive companies in the years to come, how they began making crypto investments, which led to massive wins in Solana and Brave by making small bets and winning over LP support as the wins added up.

And Steve shares how he makes investment decisions, why he thinks you have to balance a prepared mind with an open mind, and he shares his advice for anyone interested in becoming a venture capitalist.

For more, explore the transcript of this episode.

‍

Chapters

This episode is our definitive guide to reinventing a venture capital firm. In it we cover:

00:00:00 – Introduction
00:02:39 – From electro mechanical engineering to product design
00:06:22 – Interdisciplinary innovation and missionary misfits
00:10:24 – How investing snuck into Steve’s career
00:15:33 – Working at the intersection of building and investing
00:19:24 – A 15-year window into the investment world
00:24:45 – Tearing down and rebuilding an investment firm
00:39:04 – Identifying a firm’s turning point
00:41:21 – Going down the rabbit hole of crypto and enticing investors to follow
00:51:35 – The prepared mind vs. open mind
00:54:44 – Building the best product matters, but it doesn’t guarantee success
00:57:56 – The Minimum Awesome Product and evolving product-market fit
01:02:07 – Advice for new founders

Listen to the episode on Apple Podcasts, Spotify, Overcast, Google Podcasts, Amazon Music, Castbox, Pocket Casts, Player FM, Podcast Addict, iHeartRadio, or on your favorite podcast platform. You can watch the interview on YouTube here.

Our Favorite Quotes

Here are a few ideas we'll be thinking about weeks and months from now:

“I think the most interesting products and services are really usually living at the intersections between disciplines at the seams. And it's the individuals who can take an idea for one area and bring it over to another that really unlocks some new user interface, or some new approach, or a metaphor to how you use the product.”
“I think building and creation is a fundamentally optimistic endeavor, of going from what is to what ought to be. And that, to me, is the funnest part of working with these founders.”
“If I'm going to be successful, not just at Foundation, but in this business, you got to go find the best entrepreneurs. You got to go build a brand that's so strong that they want to come to you. And then when you do find those special entrepreneurs, you got to move extremely quickly. And unless you're willing to sacrifice the quality of your decision making, you got to then specialize, because the only way to move fast and move towards projects that are going to work out is if you have some degree of focus.”
“I think when you have a long enough focal length, you can weather the near term ups and downs, the markets kind of doing their crazy things, and stay focused on, again, on the things that you're doing well. And so I think so much of building something really hard is just showing up every day and doing the thing that you committed to.”
“There's a humility in our business, which is knowing that we aren't the ones building the future. We're the passengers here, and the facilitators, with capital and with time and with focus and feedback and concentrated effort, but we aren't the ones who are going to kind of go build that from zero to one.”
“If you're going to work on something, you might as work on something hard, and you might as well do it extraordinarily well, but boy, you better think about distribution, and you better think about, not necessarily from day zero, but your business model has to be something that is top of mind.”
“Achieving product market fit, it's a great thing, right? A lot of companies never get there, but it's a transitory achievement. It's a false summit.”
“The goal really is not to achieve product market fit, but rather to achieve kind of a drumbeat of regular and repeated product market fits. And I think companies who do that well are the ones that stick around for decades."