February 5, 2021
When he is investing, Trae Stephens is looking for someone who stands out from the crowd.
“We’re taught in the modern era that we should have these bullet point opinions on a bunch of things, and that if you don’t hold all the same bullet point opinions as everyone else that something is wrong with you,” he said on a recent episode of The InnovatorsRadio Show and Podcast. But as he sees it, “in modern society, the only way to do anything interesting is to be completely devoid of any care for what your peers think about you.”
“The best founders are the ones with original ideas,” he says. And originality requires taking an unbeaten path.
Trae has his eye out for big ideas and standout founders in his role as a Partner at the Founders Fund, a San Francisco-based venture capital firm that invests in revolutionary technologies across sectors with a particular interest in startups operating in the government space. Trae is also co-founder and Executive Chairman of Anduril Industries, a defense technology company focused on autonomous systems.
Having seen more than 3,000 companies during his time at Founders Fund, Trae has found there are two types of founders: The first is what he calls a whiteboard founder, someone who wants to be an entrepreneur, stands in front of a whiteboard, and figures out the best option for making that a reality. The second is what he calls a passion founder, a person who is driven by a mission and finds that entrepreneurship is the only way to accomplish it. This type of founder can’t sleep without thinking about the thing that they just have to do, and “when you find those people who are just obsessed, it’s a way more interesting ride,” Trae says.
Finding this hyper-focus in an individual, let alone a founder, can be counter to what Trae sees as a millennial bias toward diversifying — a culture that celebrates flexibility and hedging all bets in school, personal lives, and careers. Still, victory in business relies on concentrated efforts.
For founders, that means being all in with your strengths and mission, and building a team around yourself that offsets any gaps or weaknesses. “We (at FoundersFund) don’t believe that we can run the companies better than the founders of the companies, and so our strategy is to find those people that have a really good game plan for how they’re going to fill the gaps around their personal weaknesses.”
For investors, that means putting much of the fund into founders they believe are going to win big, rather than offsetting risk with lots of smaller investments.
“All of the greatest accomplishments are concentrated accomplishments…the right strategy is to concentrate deeply into the winners.”
So what does that mean for founders? “You have somewhere between 30 and 60 minutes to make a compelling pitch and the VC isn’t going to come in with a tremendous amount of context or background. It’s your job as a founder to raise money.It’s not my job to raise your money for you.”
Getting funded, he adds, isn’t a one-off activity, but one that’s rooted in relationships. Building them takes time, which is why “You should always be fundraising, even when you’re not fundraising.”
For more about how Trae’s career journey from military service, to time in the intelligence community, to entrepreneur and investor shaped his views on technology, ethics, and the future of democracy, listen to the full interview here or skip to the time stamps below.
1:48: Personal pivots: from journalism to deployment in Afghanistan to investing
7:17: What are the diversity of skills needed in the intelligence community?
9:45: The ethics of data gathering
14:15: Decentralization of geographies and the future of tech
23:00: What it’s like to go from working in government to working at a startup
28:23: Going all in: how focus beats diversification
31:15: There are two types of founders
34:30: Trae’s Day One at Founder’s Fund
37:30: Look for a margin of victory, not just a win
44:34: Trae’s model for evaluation for founders
50:01: This is how much time you have to convince a VC that you’re worth investing in
53:03: How to get funded when you’re not a natural-born fundraiser
55:18: Why we need to care about technology in order to create an ethical, democraticfuture
1:02:40: How to create an investment portfolio that can keep pace with technology.
1:04:01: This is who inspires Trae most
The Innovators Radio Show and Podcast highlights the best and brightest mission-driven entrepreneurs — people dedicated to making the world a better place. The show airs Mondays at 11 am PT/2 pm ET on Stanford University radio station KZSU, 90.1 FM, and is streamed at kzsu.org, Past episodes are archived here.
Taking an incremental approach can de-risk your innovation effort.