Eric Flaningam

Partner

Before you became an investing partner, you started as a researcher at Felicis and built Generative Value (opens in new tab) into a newsletter with 16.5k subscribers. What drives your obsession with deep industry research?

At my core, I'm just genuinely curious about how the world works -- I can't help it. Charlie Munger gave the advice to "follow your natural drift," and mine has always been curiosity. As a kid, my favorite show was How It's Made? -- I'd watch it with my dad every day. That instinct never went away, and I find investing to be the best job in the world for a curious person.

Second, I think there's alpha in the details others miss. The best investors force extreme clarity of thought, but you need as much information as possible to get there. To borrow from Donald Rumsfeld -- the most dangerous risks in investing aren't the known knowns or the known unknowns. It's the unknown unknowns. And the best way to minimize those is through deep research.

Finally, to be the best partner to founders, I think you really need to understand the details of what they’re building. It can be easy as an investor to get the high-level thesis right and invest in a company -- but I think it does both parties a disservice if the investor doesn't do the work to build a similar level of conviction as the founder. And that doesn’t show until the business faces hard times, when a good investor is needed most.

You're drawn to complex businesses in spaces others underestimate. What pattern do you look for when evaluating founders?

I think about industry lifecycles a lot. In the early stages of a new technology wave, the companies that win are the ones that compound feedback cycles the fastest: get close to customers, understand their problems, build for those problems, and use that advantage to attract more resources to build the business.

So I love when founders are first (or early) to some unique insight the market hasn't seen yet. Some industry experience is often what makes that insight possible.

But the best companies have a compounding advantage that makes it increasingly difficult for others to compete over time. And the best predictor of that, I've found, is when a founder can clearly articulate the north star for what the business is trying to do. Jeff Bezos is my favorite example: "I can't imagine that in ten years customers are going to say: I really love Amazon, but I wish their prices were a little higher, or that it was less convenient, or they had less selection.”

Finally, I think durability is just as important as growth -- and it takes a founder who is incredibly obsessed, mission-oriented, and long-term focused to build a truly massive business. Those are the traits I look for.

You draw a lot of historical parallels in your research – AI as electricity, industry lifecycle theory. Why do you think history matters so much for tech investing?

I'm of the belief that the farther back you look, the farther forward you can see.

Most every technology wave rhymes with the one before it. Human nature never changes. And patterns of disruption tend to look quite similar across eras. That alone makes history invaluable for investors.

But there's another reason I find it useful for investing in startups. For a startup to succeed, they're either fixing a broken problem in an industry or reshaping it entirely. Well, those problems exist for a reason! Industries are structured the way they are for a reason. History is often the only way to understand why things are the way they are. And once you understand that, you can start to see how they might be changed.