Naval: Because of the nature of the Internet, products that seem extremely niche can spread quickly across the world, get into everyone’s phones and saturate entire markets before the competition knows what’s happening. This is one of the reasons we tend to underestimate market size.
It’s hard to catch one of these runaway product trains. Like a virus that doubles every week, even a month or two makes all the difference. This is especially true because the first mover picks up the early adopters.
You want to invest in the first credible mover—but this can be difficult. Sometimes you invest in the first mover, but it’s not credible because the team isn’t good enough, misses it slightly or fumbles the ball. When the first credible mover comes along, you’re blocked from the deal because the first founder doesn’t want you to invest in a competitor. Then you watch as you miss a huge opportunity.
This happened to me, and it’s a painful lesson. I invested in a company at a valuation of around $5M, and then a fast-moving competitor came along and executed far better. The competitor’s now worth $5B, and the company I invested in went to zero.
Sometimes you invest in the right founder at the wrong time. Other times you invest in the wrong founder at the right time.