TitleManaging Partner

When Mike Maples, Jr. was growing up, there were two things he never dreamed he’d do in life: go to business school or become a venture capitalist. But after graduating from Harvard Business School and becoming a successful entrepreneur, Maples found himself switching hats and making that uncommon leap across the chasm, from startups to investing. In so doing, he became one of the most successful venture capitalists in the technology sector, with a unique investing philosophy and an enviable track record that makes him a regular face on the Forbes Midas list of top tech investors. Having been an early investor in Twitter, Weebly, Bazaarvoice, Twitch, Chegg, Demandforce and a raft of others, Maples has been on a long and profitable roll.

Part of his success came from his personal experience as an entrepreneur. Having co-founded Motive, an Austin-based broadband management software firm, just before the dot.com bubble burst, he had to maneuver the startup through the meltdown and subsequent NASDAQ crash “and it took a lot out of me.”

“Startups are impossible and it’s somewhat advantageous to be young enough not to know how impossible they are,” Maples said. When he sold Motive, after its IPO, for a handsome profit, he knew he would not consider taking an investor’s money to start something else. He needed a change and he zeroed in on becoming an investor himself.

“I thought the variety would be fun but I also realized the probability of success was extraordinarily low,” he recalled. “The art of building something is very different from the art of being a good buyer. Not many entrepreneurs really end up making good VCs.”

Maples, however, was undaunted. He was a self-described “child of the PC revolution,” having grown up working on one of the original IBM PCs and writing video game software in high school. He went to Stanford and became even more involved with computers. His father, Mike Maples, Sr., was a successful IBM executive and a tough-minded role model who instilled tenacity in his sons. “When I was a kid, my dad once told me `It’s only over when you decide to quit.’” So Maples plowed ahead into his investing career.

To raise his chances for success, Maples did what has been characteristic of his career: view the landscape through a different lens. He started thinking about investing but when he looked around, he saw a gap in the market. There was a raft of startups that wanted to raise seed or early funding but were not ready for a five million dollar round, which seemed to be the minimum that Silicon Valley’s vaunted Sand Hill Road VC firms wanted to invest.

“They were just not set up to fund a $1 million financing round, so I just started investing my own money in some of these companies,” Maples said. His first investment was a podcasting startup named Odeo, which later became Twitter. His second was Digg, which achieved high visibility, and that was followed by two more successful investments. His knack for sound investments convinced him to raise his first $15 million fund and to found Floodgate in 2006. That first fund has been followed by four more successful funds. Maples attributes part of his success to his learnings at business school.

At HBS, Maples was deeply influenced by a course called “The Coming of Managerial Capitalism” taught by renowned business historian Thomas K. McCraw. In that class, Professor McCraw asked his students to don the shoes of the 19th century titans of commerce, from Jay Gould to John D. Rockefeller, and try to understand what it was like to shape a vast industrial era without any precedent for what was unfolding. “These guys didn’t really know what they were doing,” Maples said. ”They were making it up as they went along.”

Given the tumultuous times and remarkable results, this era of managerial capitalism transformed the nation. Today, Maples is reminded of that “messiness of the late 1800s” and he sees the world transitioning from managerial capitalism to “network capitalism.” By that he means that the valuable companies of the future will focus less on layers of management hierarchy and coordination and more on creating networks of access where customers as well as loosely-connected providers of their labor are a key part of the network.

“So you won’t need the visible hand of the managerial capitalist to form those connections,” he said. “Instead, the role of the future network capitalist is to create, maintain, expand and facilitate networks.”

For Maples, this translates into a style and philosophy of venture investing. “Like every good rock band has its own sound, every VC has got their own style of investing,” Maples explained. “I don’t know if there is a right way or wrong way, but I like to spend my time developing roadmaps for the future. I try to capture the things in the world that are going through major change events, or are really broken or ripe for disruption, and then I try to develop a point of view about what is happening.” When a startup appears that is congruent with that point of view, Maples sees an investment opportunity. He calls these ventures “Thunder Lizards”, the rare, wildly disruptive capitalist mutations that will hit it big.

For example, when Maples was first getting started, ventures like Twitter and Digg fit into his “primary hypotheses” related to the transformation of the Internet, “from an Internet of pages to the Internet as a platform for connecting people.” Those were the investments that attracted him. Now, he said, he is seeing a shift that may be the next big thing in venture investing.

“If you went back to 1830 and mentioned the words accounting or division or vice-president, they wouldn’t have known what you were talking about,” Maples said. “With managerial capitalism, an entire new language of business had to be created. We take that language for granted today. I believe that a hundred years from now, the very language of business will be as different from today as today is from 1830.”

To that end, Floodgate has launched a succession of successful funds, all predicated on finding and investing in these startups that reflect “exponential potentiality”, a significant disruption and a sustainable impact on the future. “Part of what gets me going is how do you find the companies that will be the iconic movements that make that come about?” he said.

Maples experience with Twitter illustrates this view of the landscape.

“(Twitter founder)Evan Williams said to me, `Well, I’m doing this thing called Twitter.’ And I said, `What does Twitter do?’ He said, `You write what you’re doing. And you do it in 140 characters or less.’ And I asked, `Then what happens?’ And he said `Nothing.’ I asked, `What’s the roadmap?’ `There is no roadmap,’ he replied. So I asked, `What is the revenue model?’ He said, `There is no revenue model.’ I said, ` Ev, why do you think this is a company?’ And he said, `Well, I don’t really know if it is, but when I created Blogger, a million people wrote blogs. So I figure if I made it possible for people to write mico-blogs, I could get 10 million people to write micro-blogs. And if that happens, then the burden of proof is on the people who are negative.’” (Today, Twitter has nearly 300 million monthly users and has become a major social media platform.)

If this sounds a bit esoteric and challenging, Maples agrees.

“The venture business, like the startup business, is one of radical exceptionalism,” Maples stated. By that he means “that in a typical year, you have between 10,000 and 30,000 companies that get started and the top ten of those companies create 97 percent of all the value in the industry. So if you are going to be a venture capitalist, it really doesn’t matter if you are super early, an angel, a micro fund, a traditional Series A fund, a mezzanine fund, or late-stage. What really matters is you’ve got to have some unfair advantage to get access to those ten deals. And if you don’t, you won’t succeed.”

To a great degree, Maples views his job as a process of elimination. “I say that 99 business plans out of 100 that I get are linear in their thinking rather than exponential in their thinking,” he said. “So I eliminate those immediately. What remains are a bunch of exponential ideas, most of which are just totally crazy, like Twitter. I’ve got to figure out what’s a good kind of crazy versus a not good kind of crazy. And part of crazy good is when you look at the people, you just say `Wow. These people are technically excellent, have incredible drive, are too young to know it’s impossible. These guys might pull it off.’”

But there’s one more piece to the equation, Maples insisted. Inspired by the lessons from his father, Maples believes tenacity underlies every success. “When you look at these teams that are driven and technically excellent, you have to figure out how persistent they are,” he said. “So much of it is having the conviction to say, even though the rest of the world tells you this is crazy, `We’re right! We’re going to be crazy together. It’s us against the world and we’ll show them.’ Because it’s only over when you decide to quit. And so many people quit when they are just inches away from the promised land.”