How I think about startup opportunities

Since starting my career in 2010, I've had the privilege of both working at many startups and supporting founders as an advisor and more recently an active angel investor.

Before recently joining the effort at Facebook to help build a safer internet, I worked full-time at 4 organizations of all sizes and stages of product maturity (Lyft, Postmates, Kiva.org, Quixey), have formally and informally advised dozens of startups, and more recently have invested in about 10 startups. Growing up in the Bay Area and being in entrepreneurial communities in college, I also developed a community early on of people who are now working on all sorts of ventures, and I've been lucky to hear all about their experiences and learn vicariously about the ups and downs of being a founder beyond the companies I've been directly involved with.

While I’m still relatively early in this process and have tons to learn, here is how I currently think about evaluating new startup opportunities. This applies to how I think about founding my own startup and how I think about investing in others' startups today.

This post was written right before joining First Round's Angel Track program, and I expect my point of view on this subject will change significantly throughout that program 🙂

"Creating a new market" vs "Perfecting an existing market"

When I think about how to break down startup opportunities, two primary categories come to mind:

You are at the bleeding edge of a new technology that has yet to see mass adoption in the world. This creates a “new market.” You help define the jobs that will be done better in that new market and become the default provider for a broad area.
You come in later and vertically optimize part of the landscape to cater to niche audiences.

Both are great startup opportunities. The former has scarce though immensely powerful and lucrative opportunities. The latter has myriad small-to-medium sized opportunities.

Defining "mass adoption"

If you're close to any of these aforementioned technologies, it might sometimes feel like it already has "mass adoption" since everyone around you is aware of it, talks about it, believes in it, and is working on or investing in it.

But if a 50-year-old in Ohio, a construction worker in India, etc. don't use it and talk about it with their friends, it's nowhere near the level of adoption yet where fundamentally new markets can be created.

Defining "new markets"

When I think of "new markets", I think of radical changes to how humans are able to interact with the world around them and with each other.

You used to work, play, communicate, learn, move, transact, eat, drink, or sleep through one medium, and now it's possible to do so through a completely new and different medium. The journey of accomplishing that job that you have to or want to do can now be done in a fundamentally new way.

This is a high bar. By this definition, I can’t think of technologies that have created fundamentally new markets in the past few decades except for the internet, personal computing, and mobile.

Some technologies that haven’t yet created “new markets” with mass adoption but might include AR / VR, voice assistants, human-brain interfaces, autonomous vehicles, and wearables. For some of these, it’s unclear if they ever will; time will tell!

Other technologies that some may consider to be fundamental shifts, like blockchain or AI/ML, I would consider to not create “new markets” in the same way. These are tactics that we may be able to use to unlock more potential from existing markets, but they don't matter unless they're paired with one of the above.

If you're the inventor of a new technology like the personal computer or the smartphone, you get to decide how the entire world will interact with your new medium. If you happened to create the markets built atop both of those specific technologies, you're Apple and you are worth over $2 trillion as of the writing of this essay.

If you're one of the first entrepreneurs to build on top of a new technology someone else made, you might choose to fundamentally redesign how people transact (Amazon), communicate (Facebook), learn (Google), commute (Uber), travel (Airbnb), or enjoy leisure time (Spotify, Netflix).

For the rest of human history, the only two ways we will ever see new companies come up that meet these aforementioned companies in value created (and captured) are:

They leverage tactics like ML/AI faster and more effectively than the incumbents to better serve the jobs-to-be-done that these incumbents already serve (uphill battle since they are concurrently investing in the same optimizations, but doable)
Fundamentally new technologies reach mass adoption, either replacing currently prevailing markets (ie: shift from personal desktop computing —> mobile devices), or creating completely new markets (ie: products built on renewable energy or biotech innovations)

What "perfecting the market" looks like

While creating new markets has the largest returns, there are still many opportunities to perfect existing markets that provide tons of value to society and justify taking the risk as a founder or investor.

The formula for this looks like:

Within an existing value chain, find a problem lots of people have doing a job they care about, probably in a highly fragmented industry
Productize a new solution or user experience that is significantly more well-tailored to that job
To do this, likely take on significant overhead or risk with respect to technology, operations, and/or legal. Higher barrier to entry, but a larger moat

Things that must be true for your business model to succeed

Target audience cares enough about the problem you're solving that they, with no substitute in the market, would persevere a bad user experience to use your product
If there is competition solving the same user problem with a similar point of view, their advantages are reasonably surmountable (price, broadly accessible tech, brand awareness, etc.)
Natural feedback loop with users such that as more people use the product, your ability to understand their needs and deliver something even better increases
Unit economics work without VC funding as a subsidy
Regulation doesn't already prevent or imminently threaten to prevent your model from existing
Incentives are aligned to mitigate negative externalities long-term. Important for me personally to feel aligned with the startup, and regardless important to avoid losing the trust of your users or the public broadly

Secondary things that can increase the chance of success

You have a first mover advantage
The problem space you’re working within is inherently operationally intensive (higher barrier for others to enter)
Heavily regulated industry (higher barrier for others to enter)
Required resources to complete the value chain have low acquisition cost (ie: starting another shortform media product? Attention is already being spent on Tik Tok and Instagram. Starting another gig work marketplace? Your supply is already too busy working on Uber and DoorDash.)

Things that must be true about the founding team to succeed long-term

At least some of the cofounders are technical; no need to outsource building the initial product
Has a unique insight or value-add that will make them especially effective at leading a startup in their space
Deeply cares about the specific problem being solved; not just in it for the money
Is thoughtful about aligning incentives to mitigate negative externalities
Aligns incentives with their early team (ie: is generous with equity with early employees, advisors, and in some cases with tablestakes users)

Some problem spaces I’m excited about

When I think about what motivates me broadly in my career, it’s helping further socially significant causes that are fundamentally relevant to most if not all people, with potential to scale impact 10x beyond the current status quo.

This leads me to be the most interested in the following startup opportunity areas (but not yet limited to):

Healthcare
Education
Financial inclusion and economic equity
Housing
Sustainability and energy
Food access
Urban planning
Mobility
Civic engagement (how we stay informed, avoid misinformation, and organize)