The Tribal Network Effect (nfx #15)

Tribal nfx

by James Currier (@JamesCurrier). James is a General Partner at NFX, a seed-stage venture firm headquartered in San Francisco.

Tribal nfx

In 2017 we published the NFX Manual which laid out 13 types of network effects. We later identified and published the “Expertise” network effect, which was the 14th type.

Today, we’re sharing the 15th type of network effect: Tribal Network Effects.

The easiest way to understand Tribal network effects is to start by looking at the powerful network forces of school alumni networks, as discussed in Your Life Is Driven By Network Effects. Tribal network effects most often develop in alumni networks of schools, military units, fraternities and sororities, accelerators, languages, regions, and religions.

Tribal network effects are another of what we call “social” network effects, joining the three other social nfx we’ve identified: Bandwagon, Language, and Belief. This is because they exist in the minds of people and not in data and wires. The unique attribute of Tribal network effects is that they exist because of how people form their identities around (no surprise)… tribes.

We suspect this was the very first network effect historically, as Homo sapiens evolved as a pack animal, trying to survive. The ones that built the best tribes survived to procreate, so we are all descendants of the best tribe builders. Those who weren’t good at building or joining tribes died off. Thus, our brains are wired to join tribes.


NFX Map with #15


How Tribal Networks Form

A few key things contribute to the formation of strong Tribal network effects:

  1. The tribe is presented as an ingredient of a person’s identity, part of how that person is perceived by others. One might think: “It’s who I am.” This forms a self-concept.
  2. Network members within the tribe are taught to be intentional about building the value of the tribe by:
    a. adding value to other tribe members,
    b. defending the tribe’s reputation,
    c. receiving value from the tribe members, and
    d. growing the tribe.
    This intentional value creation and defense of a network is distinct from other types of network effects, where nodes largely contribute value and drive network effects unintentionally.
  3. In contrast to the in-group of the tribe, there is an out-group that the tribe is actively NOT. A different group, a rival, an enemy, a force to be fought.
  4. A perception of higher-status attributes of members of the tribe, creating prestige and pride. Evidence or reasoning that members of the tribe are more committed, more “right”, more justified, smarter, stronger, etc.
  5. Members of the tribe endure shared hardship or adversity, such as training for the marines, studying for tests in college, founding a company, or going through a boot camp of some kind.
  6. Tribe network members overcome a barrier to get into the tribe. There must be a believable reason for your inclusion, and some demonstration of your worth or “fitness” for inclusion. There is often a period of worrying you won’t “get in.” This creates exclusivity and belonging in the minds of the tribe members, reinforcing the other five attributes.

Not all tribes share all six of these characteristics, but the more they do, the more powerful the tribal self-identification becomes in the minds of the tribe members, and thus the stronger the Tribal network effect.

As with other network effects, network size and network density also matter in the formation and strength of Tribal network effects. The larger the tribe, up to a point, the more valuable it becomes because you are more likely to encounter and form relationships with other nodes. College alumni networks, for example, often have clusters in many different cities and companies where alumni seek each other out. Tribal networks also have a higher density of relationships between nodes because self-identification between tribe members causes them to look for shared affinities, and motivates them to altruistic behavior towards other nodes in the network.

That, in turn, leads to a higher proportion of shared connection between tribe members than in other types of networks, which incentivizes further relationship-formation and sets off a virtuous cycle. In a tribal network, people (often unconsciously) recognize that potential connections are more likely to materialize into actual connections, causing a self-fulfilling propensity to try harder to build in-tribe network connections. This creates a denser lattice of links between the nodes, driving network effects, and network value.


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Different Forms and Strengths of Tribes

We each belong to many different tribes. In other words, we are each a node in many tribal networks. The way humans form their self-concept is through many different “identity pegs.” We are complex and multi-layered.

For example, as a Princeton alum, I belong to the Princeton alumni tribe. As a Bostonian, I belong to the Boston tribe. As someone who built my life and career in Silicon Valley, I belong to the tech tribe. As an American citizen, I belong to the American tribe.

The strength of each of these tribes depends first on how effectively they build network effects based on the six attributes listed above that contribute to tribal network formation.

The strength of each tribe also changes based on the context. For instance, if I’m on a trip to Washington DC and I meet someone else from Silicon Valley, the “tech tribe” part of us might activate and give us more incentive to build a connection. The same thing applies if I meet someone who also went to Princeton, or if I see another Celtics fan on the street in Florida. These different tribal identity layers activate when they distinguish me from the broader network environment.

The strength and importance of a tribal network are also based on how much membership distinguishes you from others around you in the moment. The more you are distinguished, the stronger the self-identification with the tribe. This allows other nodes in the tribal network to more easily identify you and take action to support you, activating the tribal network effect.

Gary Larson

NFX does not own the rights to this cartoon. They are owned by the genius Gary Larson, the writer of The Far Side. Please visit his site

The comic above exposes a serious point: we self-identify with and give value to those who share membership with us in a tribal network. We’re incentivized to treat other tribe members as if we know them, even if we don’t. In this case, the size of its tribal network saved the chicken’s life. Now that’s value! And network effects are about making more value for all members with every additional new member.


Rivalry Reinforces Tribal Identity

Because our tribal identities are most triggered when they distinguish us from those around us, rivalries and competition play a key role in raising our level of self-identification with tribes.

For example, think about some of the most famous sports rivalries: Duke vs. North Carolina, Ohio State vs. Michigan, Red Sox vs. Yankees, Liverpool vs. Manchester United, etc.

Competition and rivalries improve group cohesion and power the network effect. It creates an in-group and an out-group, and the human mind is structured to highly value their in-group, particularly when the contrast with the out-group is most visible. We naturally respond to “a battle” of some kind, a force my tribe is “against.”

You are more likely to feel protective and invested in your Duke tribal identity the day of a Duke vs. UNC game because the presence of a shared adversary increases the overall level of shared investment in the outcome. Nothing drives attention quite like the drama of “us against them.”

When your tribe wins, it feels like you win.

Note your daily personal experience of having your identity connected to tribal identities. It feels positive when your tribes are winning, and it feels negative or dark when competing tribes are winning.


How Founders Can Positively Leverage Tribal Network Effects

There are four main ways to put your new understanding of Tribal network effects to good use.

  1. Think of building a tribe for your employees. This helps create great culture in your company. When you hear about a company that has very loyal employees who want to recruit everyone they know to work with them, it’s usually a sign that leadership is pushing hard on the elements that lead to strong tribal networks and a strong company culture. Examples of this are Amazon, Netflix, Facebook, and Microsoft.
  2. Think of your customers as a tribe. Companies that do this successfully are Harley-Davidson, ActBlue, Apple, Facebook when they started with colleges, NFX with its portfolio who are its customers, and potentially boot camps like Lambda School.
  3. Think of your investors and partners as a tribe. Which investors/partners like and trust each other? Which investors/partners dislike each other? For instance, in healthcare, taking capital from one “strategic investor” like an insurance company such as United will mean that another insurance company will be less likely to use your software or service because you will be perceived as being in a competing tribe. The same might be true if you take capital from Salesforce Ventures in the SaaS space. Some American investors/partners might be suspicious if you take capital from certain countries.
  4. Think about markets as tribes. Which tribes are you drawing your customers and employees from? The more customers you win in one tribe, such as Lyft getting more customers in the Boston tribe, the more that tribe will hear about you and trust you, lowering your CAC and increasing retention. The more employees you hire from the Notre Dame tribe, the more Notre Dame alumni you will have access to.


Tribal Networks Have Transformative Value

Our tribal networks add value to our lives by giving us an emotional sense of belonging and identity, and by helping us form useful connections.

For Founders, tribal identities are powerful and enduring, and they generate transformative value throughout your lifetime.

It’s one of the many reasons why at NFX we don’t call our “portfolio” of investments a “portfolio.” We call it the NFX Guild. We’re in the business of giving all our companies every advantage we can. We believe that one of the best ways to do that is to nurture a tribal network effect in the NFX Guild, for the enduring, lifelong benefit of our Founders.

The history of innovation shows that tight, dense, and engaged communities of innovators — tribes — are often at the forefront of technology’s biggest leaps forward. If that’s something you want to be a part of, come talk to us.


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Connect with James Currier

The Golden Age of Simulation with Chris Anderson & James Currier

Golden Age of Simulation Chris Anderson NFX

Golden Age of Simulation Chris Anderson NFX

On this episode of the NFX Podcast we have one of the most generative people in Silicon Valley, Chris Anderson. He was famously Editor in Chief at Wired for over a decade during an insanely influential time in tech. He also is the author of The Long Tail, Free, and Makers.

Chris has since founded 3DR, an American company headquartered in Berkeley, California that makes enterprise drone software for construction, engineering, and mining firms, along with government agencies.

In this episode, we cover:
– How regulations need to catch up with technology
– What is Simulation
– Why it’s the Golden Age of AI/Simulation
– Virtual Reality for Robots
– We’re transitioning to an abundance of data, are we using it right?
– & different use cases for simulation

The Founders’ List: “Social Capital in Silicon Valley” by Alex Danco (Shopify & Social Capital)

Alex Danco NFX Founders' List

Alex Danco NFX Founders' List

This is The Founders’ List – audio versions of essays from technology’s most important leaders, selected by the founder community.

“The 20s will see San Francisco face down some really big problems, and we’ll see if the city makes it out better or worse. But the wealth of social capital they’ve compounded will remain an undeniable asset to the tech community for a long time. ”

This is the audio version of Alex Danco’s popular essay on ‘Social Capital in Silicon Valley’. Alex is currently working on Shopify Money and was a previous associate at Social Capital.

CLICK HERE to read the full article.


Nominate Your Favorite Essay

Each week, we’ll be releasing a new audio essay or memo selected by the Founder community. Nominations are rolling, and can be submitted below:


Announcing Scouts & Angels – The Investing Network (Signal 4.0)

By Morgan Beller & the NFX team

The unseen force behind many venture capital investments are their friends. Their friends that help them find opportunities, introduce them to teams, evaluate companies, and build trust with Founders. These friends come with various titles — CEO, VP or operator by day and Scout, Angel or Solo-Capitalist by night. Financing events are more multi-layered than meets the eye, and this group forms the concentric circle around VCs in our ecosystem.

Yet until now, there was not an obvious path to these friends.

Today we’re launching Scouts & Angels, an extension of Signal — the investing network.

The Signal community of 10,000+ VC’s and 100,000+ Founders have been pushing the boundaries of the Signal platform. This new launch simply reflects how people are growing their use of Signal.

You’ll find on Signal Scouts & Angels:

    • Rahul Vohra
    • Lenny Rachitsky
    • Varsha Rao
    • Ryan Hoover
    • Ben Rubin
    • Ashley Mayer
    • Hiten Shah
    • And many others

If you’re a Founder, the system will let you:

    • See what types of companies they prefer right now
    • See who likes to invest together
    • Build your shortlist of people to target

If you’re a Scout, Angel, or Solo-Capitalist, you can apply to get your investing profile to join your friends. Once approved the system will let you:

    • Share and collaborate on deals within your investing network
    • Build your investing network with 10,000+ VC Partners, Scouts, and Angels
    • Get your investing-software stack that fits the new online fundraising reality


As a preview, here are what six of the top Scouts, Angels, and Solo-Capitalists are looking for now.


Rahul Vohra, Founder, Superhuman

Rahul Vohra NFX Scouts & Angels NFX

Are you an angel, scout, or do you have a VC fund?

I run the Todd & Rahul Angel Fund, with, well Todd! We actually have two funds now:

What kind of company sectors are you most interested in?

We invest broadly, but we are especially excited about certain spaces:

  • Productivity
  • Viral SaaS
  • Health, fitness, and wellness
  • Creator and maker tools
  • Business infrastructure

Superhuman is of course a great example of #1 and #2.

How much do you typically invest?

We invest $100k to $200k. Our typical check size is $150k.

Where do you think you add the most value? What kind of Founder should be interested in you?

We help startups find product/market fit faster, supercharge their distribution, and raise from the very best investors. There are companies where we’ve driven significant revenue, companies where we’ve put together funding rounds, and even a company where we saved a round at the very last minute — helping to replace one lead investor with another!

What is the biggest lesson you learned about fundraising from being on the “other side” that you want Founders to know?

The most common reason for investors to pass on strong founders with great products is whether or not there is a path to a billion-dollar outcome — and whether or not the founders convey it with conviction.

This is not something that is obvious as a first-time founder, but after a while of angel investing it becomes top of mind.

The corollary: the fastest way to improve your pitch is to tell a compelling billion-dollar story.

What are the biggest trends you’re seeing right now?

We’re seeing a lot of very exciting innovation in healthcare (e.g. NexHealth), creator tools (e.g. Descript), and education (e.g. ClassDojo). The rate of change in these spaces is massively accelerating, and we think that there are multiple gigantic companies to be built.

What is 1 popular belief about the future of tech that you disagree with?

There seems to be a general sentiment that capital is becoming a commodity.

But this conflates how easy it is to raise capital — and it certainly has never been easier — with who you raise capital from.

As the fortunate recipient of capital from extremely helpful investors — and as a helpful investor myself — I know first-hand that capital is not a commodity. It increasingly matters who you raise from!

If you could put out a RFP (request for pitches), what would it be?

We have many! Here’s just one…

Superhuman is scaling rapidly. Historically, I wrote all our copy. Our copy is now written by multiple groups: content marketing, product marketing, and customer acquisition.

But we still want it to sound like me, and I have a very particular style.

We would love — and pay for — a magic wand, perhaps powered by GPT-3, that can transform a product announcement draft into the final artifact that I would otherwise spend hours polishing!


Rahul Vohra Frameworks



Ashley Mayer, Head of Communications, Glossier

Ashley Mayer NFX Scouts & Angels

Are you an angel, scout, or do you have a VC fund?

I’m an angel and a scout. I spent three years in venture capital on the brand/marketing side prior to joining Glossier (where I lead Communications), but I didn’t get into angel investing until more than a year after I’d left the venture world. I have a few scout relationships, including (I’m a member of the new Verified Scouts program), and I’m also a Homebrew Advisor. Additionally, I belong to an angel investing group where the startups we invest in have access to our collective expertise. Getting to help scale Glossier every day while staying close to the early startup ecosystem as an investor and adviser feels like I’m having my cake and eating it, too. I don’t have a lot of time for hobbies, though.

What kind of company sectors are you most interested in?

I’m category agnostic in theory, but most of my investments to date are concentrated in consumer (including some DTC brands) and health/wellness, with a handful of exceptions. This amuses me to no end, because I began my startup career in enterprise software (six years at Box), and still see myself as an interloper in the consumer world. One of the reasons I love investing as part of an angel group is that I’m exposed to a broader range of startups—the other three women are all founders in different categories, and so we bring in a really dynamic mix of deals and learn from one another in the process.

How much do you typically invest?

My angel checks are generally $10K and also come with my time and expertise. The scout checks are bigger.

Where do you think you add the most value? What kind of Founder should be interested in you?

I help founders tell their stories. This includes thinking through broader questions around messaging and positioning, as well as super tactical advice, like how to pitch a reporter. For founders that are excited to dig in and learn, I take a “teach them to fish” approach. For others, I’m a sounding board when they have a specific opportunity or challenge. Storytelling is such an essential part of every early-stage founder’s job—not just when it comes to press, but also prospective investors, first hires, early customers—and I’m surprised there aren’t more Comms folks who invest, because our expertise is super applicable.

What is your process for funding startups? What is the path to get you as an investor?

Because my day job keeps me pretty busy, I’ve been fairly reliant on deal flow from other angels, VCs and founders. It’s a great filter, though, because people usually think of me if there’s a really exciting brand/storytelling opportunity—maybe the startup is creating a totally new category, the product aligns with a major behavioral or societal shift, or the founder has a uniquely compelling personal narrative. Additionally, I’ve met a lot of founders through Twitter, and I even invested in a company whose founder slid into my DMs (they’re open!). It’s a hard channel to stay on top of, and there’s a fair amount of noise, but I do my best.

What is 1 popular belief about the future of tech that you disagree with?

Is this where I earn my contrarian stripes? I guess I’ve learned to tune out a lot of the “future of tech” thought leadership, given all the time I spend on VC Twitter and my PR background. In general, though, I’m wary of hype. I have a higher bar for investing in things that are obviously buzzy. Categories and companies that are “hot” have an easier time fundraising and hiring, to be sure. But attention spans in this industry are short, and we quickly move onto the next shiny thing. I look for founders and teams that I think can stay focused on building companies without that external validation. The importance of patience, and not getting overly caught up in cycles (whether positive or negative), is probably the most useful thing I took away from my time in venture. All those bumps look smoother from a distance.

If you could put out a request for pitches, what would it be?

I’m really interested in expertise-oriented networks, communities, and marketplaces. Oh, and if you see the long-awaited and much-needed successor to LinkedIn, please tell me!

What are the biggest trends you’re seeing right now?

There are so many interesting startups focused on women’s health in response to systemic gender bias in medicine. It can feel pretty noisy because there are a bunch of different ways in (birth control, fertility, pregnancy, menopause, physical therapy—turns out our bodies have a lot going on!) but I am super bullish on this category as a whole. I’ve learned so much in the process of talking to and investing in some of these companies, and I’ve also been incredibly impressed by the caliber of the founders I’ve met, who are often solving problems they’ve dealt with themselves.


Ryan Hoover, Founder, Product Hunt

Ryan Hoover NFX Scouts & Angels

Are you an angel, scout, or do you have a VC fund?

I invest with Vedika Jain out of a venture fund I started just over 3 years ago named Weekend Fund.

What kind of company sectors are you most interested in?

We invest broadly in pre-seed and seed-stage companies across industries. That said, we’re particularly interested in:

  • Tools for remote and distributed working. For the last 7 years, I’ve worked with a distributed team at Product Hunt, so I’ve seen the pros and cons (i.e. opportunities!) in this growing category. Portfolio example: Deel.
  • Audio-first tech. As AirPods and smart speakers become ubiquitous, we’re increasingly interested in founders building new consumer apps or infrastructure for audio-driven experiences. Portfolio example: Voiceflow.
  • Creator economy. I wish more people obtained freedom from doing what they love. That’s the dream, and we want to help those supporting a new generation of entrepreneurs. Portfolio example: Ikaria.
  • Vertical job marketplaces. We’ve seen a massive shift in how people work in this last decade with the rise of the gig economy. The next evolution of that is already underway with vertical job marketplaces that have an ability to better serve both sides of the market (supply and demand) more efficiently than general-purpose job boards. Portfolio example: Pattern.

How much do you typically invest?

We typically write $75k to $200k checks.

What % of your time do you spend advising startups?

This varies widely week-to-week, depending on what the portfolio needs help with. Supporting the portfolio varies from 10% to 40% of the time I spend on Weekend Fund in an average week.

If you could put out a RFP (request for pitches), what would it be?

We would love to speak with companies that match any of the categories shared above (tools for remote/distributed working, audio-first tech, creator economy, and vertical job marketplaces).

Where do you think you add the most value? What kind of Founder should be interested in you?

We know how busy founders are and try to be very respectful of their time. For this reason, we avoid asking for agenda-less “coffee meetings” and instead focus our time on specific asks. We see ourselves as a pit crew, ready to support when needed. We’re most helpful with:

  • Product. Vedika and I have a background in product management. I’ve spent nearly 7 years building Product Hunt so I’ve seen a lot. We enjoy jamming on product strategy and serving as a thought partner to founders, especially in the early days.
  • Community. This is an area we’re uniquely qualified to help with as few investors have experience building communities. We work with founders to think through how community can help achieve their business goals to drive WOM, increase retention, and create a long-lasting brand that people want to be a part of.
  • Fundraising. The relatively small size of our fund allows us to be collaborative with other early-stage investors. When we invest, we often help founders close the rest of their round by making introductions to other strong early-stage investors. When it comes time to raise the next round – typically a Series A – we’re eager to be a partner with them throughout the fundraising process.

Separate from the above, we also help with press, recruiting, and marketing when we can.

What is 1 popular belief about the future of tech that you disagree with?

I believe the future of knowledge work is distributed. This belief used to be a lot less popular but many still doubt the future of remote work.

Although I would never prescribe the same work style for every company (we’re all different!) I expect many more companies to be fully (or mostly) distributed in the future, largely driven by talent’s demand for that lifestyle. Many knowledge workers prefer the flexibility of remote working (this includes those with an ability to work outside of their home at a co-working space or something similar). Furthermore, companies that hire remotely have access to the world’s talent, dramatically increasing their pool of candidates (and theoretically, the quality of their team). As more companies serve global audiences, there’s an even greater need to hire a global team to serve them.

Of course, distributed teams face unique challenges but I believe new tools and better habits will emerge as people gain more experience working remotely.

What are the biggest trends you’re seeing right now?

The biggest shift in VC today is the rise of early-stage funds. This trend started a few years ago and is dramatically accelerated with AngelList’s Rolling Funds as they’ve made starting a fund far more accessible for many.

Since its introduction in February this year, AngelList hosts over 70 Rolling Funds, with several hundred GPs on the waitlist. To put this in context, according to First Republic, last year 282 new sub-$100M funds closed in the US. I expect Rolling Funds to power more than half of US “micro funds” by the end of 2021.

This is great for the ecosystem. Increased competition at the early stage will force VCs to get more creative and try new things. It also has the potential to give more entrepreneurs a chance to pursue their vision, especially as new funds emerge from a more diverse group of managers.

What is the biggest lesson you learned about fundraising from being on the “other side” that you want Founders to know?

Many founders don’t know how to run a proper fundraising process. Some start conversations with investors casually before they’ve nailed their pitch or finalized a timeline for their fundraising activities. We help our portfolio companies through this process and recommend that they concentrate their formal first meetings with investors over a two week period*. Without a tight process, it’s easy to get stuck raising for months which can be very distracting and produce sub-optimal results.

*This doesn’t preclude founders from getting to know investors before they start fundraising. After all, the founder and investor relationship lasts for several years once the cap table is set.


Ladder of Proof



Ben Rubin, CEO & Co-founder, /talk, (Co-founder, Houseparty)

Ben Rubin NFX Scouts & Angels

Are you an angel, scout, or do you have a VC fund?

I’m a scout for Sequoia.

What kind of company sectors are you most interested in?

Anything people facing. The category doesn’t matter.

How much do you typically invest?


What is the biggest lesson you learned about fundraising from being on the “other side” that you want Founders to know?

Many folks out there are “shy” to say that they are actually fundraising. They go around and meet a bunch of investors for “quick chats” but when asked they won’t admit they are “officially fundraising”. As an investor, I want to invest in people that are able to communicate what they want and set expectations around it.

What is 1 popular belief about the future of tech that you disagree with?

I’m worried people over index on the notion of fully remote world post covid. I think Covid is a huge accelerator but not a tipping point.

What are the biggest trends you’re seeing right now?

Presence apps. A lot of them.


Lenny Rachitsky, Former PM/Growth, Airbnb

Lenny Rachitsky

Are you an angel, scout, or do you have a VC fund?

Angel, scout, and co-lead of a syndicate of 150+ Airbnb alumni called AirAngels.

What kind of company sectors are you most interested in?

I’m all over the place (I recently invested in a psychedelic drug startup) but generally stick to B2B SaaS, marketplaces, and consumer products.

How much do you typically invest?

$10k personally, $25-50k with scout, and $100-300k with the AirAngels syndicate.

What % of your time do you spend advising startups?

A very small % at this point — I try to use most of that time for the newsletter now.

What do you see as the most common mistakes Founders make in pitching you?

Not acknowledging the risks in your startup directly. As an investor you are looking for all the reasons this won’t work (too small a market, high churn, lack of unique insight, founder backgrounds, etc.), and if you leave the call without feeling confident about these things you’ll likely pass. As a founder, you’re better off leaning into these things and giving the investor reasons to believe. Specifically, (1) market size, (2) why you’re the right team to win the market, (3) your unique insights into the problem, (4) why now, (5) traction/PMF, and (6) your distribution advantages.

What are the biggest trends you’re seeing right now?

  • Remote working, and collaboration and video
  • Consumer apps
  • Top-down B2B SaaS

What is 1 popular belief about the future of tech that you disagree with?

That we’ll continue to work remotely in a significant way. As a species, we’ve worked together in the same physical space since the first Homo Sapien. My guess is that a year or two after COVID goes away there will be a reversion to the mean and companies will prefer teams working together in offices again.


Varsha Rao, CEO, Nurx

Varsha Rao NFX Scouts & Angels

Are you an angel, scout, or VC?

I am an active angel investor and former Sequoia Scout.

What kind of company sectors are you most interested in?

I’m most interested in marketplaces, SaaS, consumer and digital healthcare companies.

How much do you typically invest?

I typically invest $100K to $250K.

What do you see as the most common mistakes Founders make in pitching you?

Founders have a great high-level vision but not necessarily clarity on the acute problem they are trying to solve and a compelling customer value proposition.

What do you look for in a pitch deck?

I look for a clear articulation of the problem to be solved, a vision and concrete approach to addressing the problem. I also look for an answer to the question of why now, a view on competition and if others have either tried and failed or why the founder’s solution is different. Last, I also look for what makes the founders unique in this situation – a unique origin story, experience, better understanding of the problem that could lead to better development of a unique solution, etc.

What are the biggest trends you’re seeing right now?

The biggest trends I am seeing now are in trends that surround the home and new work situation – and this is very broad – everything from ordering and cooking more at home, to decorating your home more, to doing more things remotely (which leads to more cloud services) to virtual events, to telemedicine/telehealth to virtual volunteering. Our entire lives have been changed due to the limitations that COVID has placed on us and there are a lot of innovations that will come from this period.

What is the biggest lesson you learned about fundraising from being on the “other side” that you want Founders to know?

Two lessons:

1) Take the time to build relationships with investors well before you need to raise money. Investors want to know if you are the team that they want to “work with for a decade” and this takes time.
2) Being a “leader” in a segment/category (even if it’s a potentially narrower segment) is better and will be more compelling for investors than being the 2nd or 3rd player in a more crowded field.


Hiten Shah, Co-Founder & CEO, FYI

Hiten Shah NFX Scouts & Angels

Are you an angel, scout, or VC? Feel free to give us the name of the firm you are a scout for, if applicable and if you’re comfortable.

I’m an angel. The majority of the money I’ve invested over the years has been my own personal capital. I’ve invested via SPVs, AngelList syndicates and have also invested via a new platform called Firstlook from Tribe Capital.

What kind of company sectors are you most interested in?

When people refer companies to me, they are usually B2B SaaS companies because of my personal background. But I’ve invested in many different sectors from consumer products like Muze.

How much do you typically invest?


Where do you think you add the most value? What kind of Founder should be interested in you?

I’m a multi-time founder who has started self-funded businesses and venture-backed ones. I’ve also seen thousands of companies and their pitches. At this point, it’s rare for me to hear “a new one” when a founder calls me for my opinion on their specific situation. I have also really honed-in on the way that I like to help founders by giving them contextual advice.

What % of your time do you spend advising startups?

I’ve spent as much as 40-50% of my time formally advising startups when I’ve been in-between working on my own company. These days, it’s less than 1% of my time. I’m focused on building my company. To clarify, if I invest in a company, I don’t consider myself an advisor to the company. The way I think of it is that founders I invest in are a priority in my inboxes, right after people that work in my companies.

What do you expect to see a lot more of in 2021?

I truly believe we are going to see an explosion of new founders and companies, self-funded and ones that are seeking capital. In addition with so many more solo capitalists coming into the scene, they are going to need founders to fund =)

What is 1 popular belief about the future of tech that you disagree with?

This is a tough question for me. I believe in multiplicity of viewpoints and look to understand as many perspectives as I can. I wouldn’t necessarily disagree with something, but more understand why someone would have those views. Where do they come from? And do we agree on those things?

What is the biggest lesson you learned about fundraising from being on the “other side” that you want Founders to know?

Don’t take things personally when it comes to investors. There tends to be a lot going on for most of them that is behind-the-scenes work which is not often talked about. Instead, focus on what you can control when you’re fundraising. And finally, follow-up if you don’t hear back.

Thank you to all of our VIP Scouts and Angels: Erica Joy Baker, Sriram Krishnan, Dylan Field, Kristy Tillman, Brianne Kimmel, Tim Ferriss, Todd Goldberg, William Barnes, Kulveer Taggar, Andy Sparks, Iman Abuzeid, Garrett Smallwood, Allison Pickens, Cyan Banister, Marco Zappacosta, Jude Gomila, Allison Barr Allen, Joshua Browder, Sam Yagan, Jonathan Swanson, April Underwood, Matt Mireles, Bobby Goodlatte, Julia DeWahl, Kevin Hartz, Dan Scheinman, Robin Chan, Matt Macinnis, Hiro Tien, James Gutierrez, Moshe Lifschitz, Jake Seid, Yuri Sagalov, Shaherose Charania, Katie Stanton, Timoni West, Jake Zeller, Zach Coelius, Pete Colis, Charlene Li, Sam Parr, Cristina Cordova, Anand Chandrasekaran, Mandela Schumacher-Hodge Dixon, Hillel Fuld, Kevin Lee, Vivek Patel, Jared Erondu, David Lieb, Jonathan Medved, Maia Bittner, Zach Kanter, Jared Hecht, Steve Martocci, Justin Kan, Lolita Taub, Phin Barnes, Ben Davenport, and Boris Wertz.


Fundraising Checklist



Morgan Beller

The Founders’ List: Slack’s Internal Memo ‘We Don’t Sell Saddles Here’ (Famous Memos)

Slack Memo Founders' List NFX

Slack Memo Founders' List NFX


This is The Founders’ List – audio versions of essays from technology’s most important leaders, selected by the founder community.

“When you want something really bad, you will put up with a lot of flaws. But if you do not yet know you want something, your tolerance will be much lower.”

The memo below was sent to the team at Tiny Speck, the makers of Slack, on July 31st, 2013. It had been a little under seven months since development began and was two weeks before the launch of Slack’s ‘Preview Release’.

CLICK HERE to read the full article.

Nominate Your Favorite Essay

Each week, we’ll be releasing a new audio essay or memo selected by the Founder community. Nominations are rolling, and can be submitted below:


Viral Effects Are Not Network Effects

Viral Growth Channels NFX

by James Currier (@JamesCurrier). James is a General Partner at NFX, a seed-stage venture firm headquartered in San Francisco.

Viral Effects vs Nfx

Virality and network effects are conflated by even experienced Founders, and it keeps them from having the right strategies and developing world-class products.

Viral effects and network effects are two completely different things.

Viral effects are about growth of new users. Viral effects are when you get your existing customers to get you more new customers, ideally for free.

Network effects are about adding value and defensibility to your product. A network effect is when every customer of your product adds incremental value to all the other customers of your product so that it becomes difficult for customers to find any alternative product which gives them as much value.

Viral effects can exist without network effects, and network effects can exist without viral effects.

Further, there are very different playbooks and mental models for building virality vs network effects. Not understanding the distinctions will be detrimental to your company’s long term success.

The name of our firm, NFX, stands for network effects. That’s how important we think network effects are for value creation. Sure, as Founders ourselves, we created *viral* effects in over ten companies that went viral enough to attract 10+ million users, including one over 150 million and another over 1 billion. We deeply understand the inner workings of building virality.

Yet at the same time, we learned how much less important viral effects are to long-term value creation than defensibilies like network effects.

While viral effects are a useful attribute of products to reduce the expense of acquiring new users, network effects remain the key driver of value creation for startups in the digital age by keeping people using them.

Both are hard to create. There are no longer as many products that go viral as there were in the so-called Golden Age of Virality, 2000 – 2012. And products with true network effects are also rare and take care and feeding over time to keep their network effects.

Part of the confusion between the two comes from the fact that many iconic network effect companies in recent history like Facebook, Twitter, TikTok, and WhatsApp also happened to experience rapid viral growth. But because virality and network effects coincided with these high-profile cases, they are falsely perceived as two sides of the same coin.


Nfx Case Studies


How To Think About Building Virality Into Products

To develop great virality you must be focused on language. Language is the rails on which products are shared, so you must play with language, experiment with it, and build the product around the language.

You want to get a user to feel the emotional content of your product. What’s their emotional or psychological payload? What will the user feel about themselves when they share? This type of EQ thinking, combined with the analytical/mathematical skills to keep iterating, are rare skills to find in one person. That’s why the viral growth people are legends. If you don’t have that combination, find someone who does, and stay close to them.

Another unique thing about virality is that it comes and goes over time depending on the channels available. These viral channels are constantly in flux. Not true with network effects, which are more stable over time. Which viral playbooks are most effective depends upon the era you’re operating in.

Viral Growth Channels NFX

We’ve identified ten different playbooks for creating viral products. We’ll cover them in greater detail in future essays, but here’s a quick look at six of them.

  1. Novelty/Entertainment: the product stands out because of its novelty. It makes people say “you have to come check this out” — whether because it’s funny (BuzzFeed), anger-inducing (NowThis), Inspiring (Upworthy), or creates unparalleled value (Zoom). There are many reasons why people share and we’ll cover those in a different essay.
  2. Instrumented: you design the product to acquire virality and tune it iteratively using A/B testing and data to increase the K-factor. The legendary viral loops.
  3. Blind instrumented: a version of instrumented virality when you can’t see the full picture of the behavior of viral message recipients after they receive the viral message, such as when trying to get products viral on Android/ iOS.
  4. Incentivized: Incentivizing users to share the product with their friends using rewards like more product access (Dropbox), free services (Uber), or money (PayPal).
  5. Link-planting: Getting your users to put referral links to your product on publicly visible profiles, such as their Twitter bio or Facebook profile.
  6. Celebrity: The idea is that if your product can get featured by the right celebrities, it will go viral. This isn’t typically true, but it’s a viral strategy people pursue.


How to Think About Building Network Effects Into Products

Network effects are a topic we’ve covered extensively. Here are just some of those essays:

The thinking behind building network effects is less about emotion and more about the math for customers around getting value — utility. Giving the customer more value out of your product by getting your other customers to put value in it. Customers are not even usually aware that they are doing mental math around the value they are getting from network effects businesses — but they are. “What do I give for what I get?” When that math makes sense, they will never leave. Retention builds defensibility.

Viral Effects Network Effects Chart NFX

Viral success without network effects or some other defensibility is often flashy but short-lived.

The list of viral companies that failed to produce valuable companies is long. Going viral didn’t make JibJab, PhotoBooth, FormSpring, BuzzFeed, or the Sequoia-backed QuizUp (which raised $27M and died) nearly as defensible or valuable. They didn’t have network effects.

The opposite is also true. Products with network effects don’t necessarily have viral effects. A B2B marketplace, such as NFX portfolio companies like Moov or Incredible Health, could easily use paid advertising to attract buyers and sellers and build a 2-sided marketplace network effect with little virality.

Or, you could pay a city to deploy a thousand IoT devices or other physical nodes across a city that creates a mesh network whose performance — due to the network density — is so much better than any others that no competitor could hope to compete until they also deploy a thousand nodes to their own mesh network.

Understanding the difference in network effects and viral effects is important for getting your playbooks right, especially considering how often people mix them up. Make sure that isn’t you.


NFX Bible - Map


The Relationship Between Viral Effects and Network Effects

As mentioned earlier, a lot of the confusion between network effects and virality stem from high-profile examples like Facebook, which exhibit both properties.

There’s also a strong complementary relationship between virality and network effects.

For products seeking virality, also having a network effects approach to the product is useful because it makes it easier to create viral language hooks using words like “share”, “get”, and “see” that aren’t as easy to build into non-network effects products.

For products seeking network effects, having virality means that you can add new users faster to build your network effect and hit critical mass faster than your competitors. You don’t need virality to do this, as you can pay to acquire users, but virality helps you achieve network effects by growing the network more quickly. Sometimes explosively. Note Zoom in April 2020.

So there can be a symbiotic relationship between network effects and virality if you design the product correctly. Some other reasons that network effects and virality are easy to confuse:

  • Viral effects and nfx are both nonlinear processes.
  • They both lead to positive feedback loops. More users leads to more value or more users, respectively.
  • Network effects create value for your users while you sleep, and virality creates more new users as you sleep.
  • Increased value from new users due to network effects can increase virality by causing word-of-mouth.
  • They are both rare and difficult to engineer.
  • They are both mostly found in tech companies built for a networked age.
  • The pioneers of viral marketing and network effect business models both came from Silicon Valley, and this is no coincidence. The same global online network that enables viral loops to reach huge populations is the same driving force behind networked products with userbases of unprecedented scale.


The Future of Virality and Network Effects

With viral effects there are seasons to it, depending on the channels and technologies you have available. Going viral today is more difficult than it was during the 2000-2012 Golden Age because most platforms have become saturated with the same viral strategies that worked early on.

Virality has therefore largely returned to where it was before the rise of the internet: things simply need to be novel. That means, as mentioned above, they need to be immensely high quality, shocking, or deliver 10x value to go viral, typically through regular-old word of mouth.

Network effects, on the other hand, never go out of style. They’ve been important for the last 30 years and will continue to be for the next 100. Network effects matter irrespective of the time in which you live. They describe the underlying force of wealth creation in a networked economy.

So if you have to choose between viral effects and network effects, choose network effects.


NFX Map Banner


Connect with James Currier

The New Mindset for Product-Market Fit

New Mindset for Product-Market Fit NFX

by Gigi Levy-Weiss. Gigi is a General Partner at NFX, a seed-stage venture firm based in San Francisco.

New Mindset for Product-Market Fit NFX

Whenever I talk with early-stage Founders they are always worried about growth. It’s an easy mental trap to fall into — up and to the right growth is a windfall for startups because it generally means more users, more revenue, more success.

But many Founders fail to realize that the reason they aren’t growing is because they’ve missed a mission-critical step.

It’s well known that product-market fit is the absolute prerequisite to sustainable growth. It’s pointless to try to grow without a great offering that you’ve already proven that people want, need, and love.

But less known is an even earlier and equally mission-critical step. One that can save you months and millions. Before you can find product-market fit, you need to first define your product’s promise. I call this finding your product-promise-market fit. And it doesn’t require a single line of code.


There are 3 reasons many Founders skip the step of finding product-promise:

  1. First, Founders are essentially product people at heart. Whether we are creating services, marketplaces, entertainment, software, or something else, Founders are “builders” who have a vision of bringing something new to the world. We are eager to see and feel the impact of what we make, so we often race ahead. Building feels like a critical step in validating. That’s of course true — but it’s not the first step.
  2. It is widely accepted that the primary goal of any new company is product-market fit. Much has been written about product-market fit that you can find in great books like Eric Ries’s Lean Startup and Steve Blank’s excellent writing. As a result, most startups think that the only valid process is: build a lean MVP, iterate until you nail product-market fit, and grow. Again, this is not untrue — it’s just not the starting point.
  3. The last reason is that validating your product promise wasn’t easy to do (and sometimes not possible) even just a few years ago. It’s the emergence of better targeted and more segmented advertising platforms like Facebook that make this so easy to do today.

What the smartest startups know is that we have to first earn the right to build. Before we start building, we have to test our ideas against the market.

Not only will this unlock speed for your startup and save you time and money (the two non-renewable resources that early-stage startups most need to protect and maximize) — it will also accelerate and strengthen your discovery of true product-market fit.


Why product-market fit is critical

The #1 reason startups fail is that they run out of money before achieving product-market fit. Simple as that. Once you have product-market fit, funding is usually dramatically easier.

There are many different definitions of product-market fit, but in essence, they all revolve around three basic components: identified customers who want your solution, in a market large enough to justify the business.

Simply put, product-market fit is that magical moment when you become a must-have in your customers’ minds. This happens when you solve a real problem for them, or help them do something 10x better, or you allow them to do something they couldn’t do before.


10 Places to Find PMF


A simple test for product-market fit

One test for product-market fit: look at all the products you are using in your everyday life. Now ask yourself of each product: “If someone took this product away from me, would I be upset? Would it make my life harder in some way?”

The strongest product-market fit comes when users find they can’t live without a product.

Imagine what would happen if Google Maps and Waze were suddenly deleted from your phone forever — right when you were trying to get somewhere. Similarly, how would you feel if your new iPhone was discontinued? Or if Uber/Lyft were no longer available. You would probably feel that pain acutely.

If you love something, you use it routinely, and it makes your life easier or better — and if you can’t do without it — then that product has strong product-market fit.

When Slack was in its early stages, many companies tried to stop their employees from using it, saying it was against corporate security guidelines. Employees were so unwilling to do without the product, however, that companies were forced to find a way to accommodate their demands.


Real value is transformative

Products with product-market fit will bring real value to users. Value can come in many forms: money, time-saving, enjoyment, peace of mind, etc. But the thing you’re offering has to produce true value for users — it has to materially affect and transform their habits and lives — in order for you to have a business worth growing.

There’s little point to aggressively marketing a product that brings no value to its users. They may initially come to check things out but they’ll eventually leave. It’s like pouring water into a leaky bucket: even if it seems full for a second, it is very quickly empty again. That’s why product-market fit, delivering real value to your users, is so critical. It gives you a solid foundation from which to grow.

When my partner Pete Flint talked with Andy Johns (formerly lead of the growth teams at Facebook) on our NFX podcast, Andy revealed something that most Founders today may not realize: that Silicon Valley’s obsession with “growth hacking” was misguided. That’s because it was rooted in an extreme anomaly — companies like Facebook, Twitter, and LinkedIn — which had already achieved product-market fit. That was their secret enabling them to scale via internal growth teams.


Superhuman's Product Frameworks


But first, find your product promise

But is product-market fit truly the cornerstone of product development? It’s clearly a critical step, but I believe there is an even earlier step. First, you need to find your “product promise” and your “product-promise-market fit.”

To understand this, we need to break classic product-market fit into two distinct stages:

Stage 1: Finding a product idea that users want — a concept that sticks.
Stage 2: Executing on the product — actually building it well.

These are very different challenges. But the traditional product-market fit process bundles both of these stages together, as discovery is done through exposing the users to the actual product you build (or at least, something lean that mimics it).

But why spend time and money to build the product if you can first check whether your product promise — the theoretical approval that users give to the idea of a product —resonates with your customers?

It used to be that there was no other way. Before the days of modern online marketing, the theoretical way to try to check your product promise involved focus groups. But, as many brands found over time, users didn’t always behave in these groups the way they eventually consumed a product. Plus, the way you asked the questions often impacted the outcome of the focus group.

So, for lack of choice, building the product early (or at least its most important core, the MVP) became the norm, even in the agile startup world. This is no longer true today, especially now that you can test your product promise any number of ways before you even start building your product.

The product promise is in fact the first step of finding your product-market fit — and testing its validity should be done before spending any effort on building the product. This is especially true because, when separated out, Stage 1 above takes probably less than 5% of the time and cost of the entire product-market fit discovery process, but gives more than 50% of the validation required.


So, how to measure your product promise?

What you are actually testing is if customers respond well, and in a measurable manner, to your product concept. You are using language instead of code as your building blocks. You are telling your product’s story the way you would market it if it had already been built. For this reason, the description needs to be precise and true. You will only be tricking yourself if you verify an imprecise product promise. You can’t over-promise either. There’s zero point in getting good feedback for features you might be able to deliver in five years. What you need to do is ensure that the basic, core MVP that you are about to build is going to be well received.

Once you have a crystallized product promise down on paper — in terms of clearly defining the language, positioning, pricing, benefits, and value to your users — then the rest of the process of measuring for promise-market fit is straightforward:

  1. Create a bunch of ad campaigns for your product promise, to test different stories and theories.
  2. Set up multiple landing pages and calls to action.
  3. Define your audience on your chosen platform.
  4. Start marketing.
  5. Analyze campaign success and optimize until you get to a validated product promise.

If this sounds familiar, it’s okay. This is the exact product-market fit building and optimizing process — only with words before you have code.

You are marketing your product promise instead of a built product. You are sending your potential users to a landing page where you try to get them to respond to your call to action and convert into a “user.” Do this over and over again with different setups. Test like crazy, measuring everything, every step of the way. You need to think like a mad scientist experimenting with your language, art, CTA, pricing, ad channels, and audiences. But remember, your goal is to do this without writing a single line of code.

People often ask whether testing a product promise in this way can annoy or frustrate users. Wouldn’t they be upset that the product is not live? That you “tricked” them into clicking what ended up a waste of time?

The answer is no. You’re not lying to anyone.

You can tell them at the end of the flow that the product is coming soon. You can give them a large discount or status or reward for being early, for being first, for giving you feedback. Never underestimate human interest in that which is new.

If you are really worried, you can launch the test campaign under a different brand name, which you can change once you’re ready to go to market with a built product. At the very worst, you will be slightly upsetting a few hundred or a thousand users. That’s not a reason to build the wrong MVP without testing its product promise first.


Numbers don’t lie

Throughout this testing process, the need for benchmarking data is critical. Without data, you won’t be able to analyze your different campaign results to find out whether your product promise is positively received, or whether it’s had only a lukewarm response. For example, if you don’t know what clickthrough rate to expect for your specific audience, you will not be able to reach meaningful conclusions. Is a 1% clickthrough on an ad for small business owners in New York great or horrible? And if only 2% then give you their email, what should you make of it?

This data, which used to be the most secret asset of each company, is now a lot easier to come by. There is so much open-sourced and available marketing information from so many experts that you can easily learn how to benchmark your own data.

The two key metrics you must monitor as you test your product promise on a specific market are your ads CTR and the conversion of the landing page’s CTA. These will help you determine (compared to the benchmarks) how users have responded to your product promise. Later, when you’re measuring actual product-market fit, retention analysis — especially a cohort analysis — is usually the best KPI to determine if you’ve achieved it.

One critical thing to remember is that numbers don’t lie. Yes, you will need to run multiple tests at a time, because numbers can be depressed due to poor creative (which is why you should try a few different design options), or a badly set up campaign (which is why you set up more than one campaign), or your landing page might have the wrong CTA and therefore your conversions are low (so you should set up a few landing pages). But in general, looking at your data from the different tests, you will see that the numbers are always directionally correct. If the landing pages you set up have great conversions, then you are off to a great start and you can start building your MVP. If the numbers are bad, you should continue iterating on your product promise until you get it right.

As with most things, the middle ground is the hardest. If your numbers are just okay, it is easy to trick yourself into believing that’s good enough — thinking that once someone sees your “real” product, they will fall in love with it. This is never the case. If your early product-promise-market fit data is coming in at a solid “okay” then I strongly recommend iterating until you find a great product promise with white-hot conversion rates.

Over the years I have tried this product-promise strategy with many companies with growing success, especially as platforms such as Facebook have allowed for better targeting of specific customer segments with incredibly precise messages. What was impossible 10 years ago is incredibly easy to set up today: targeted campaigns for very specific audiences, with amazing tracking, which allows you to easily analyze responses to your product promise campaign.

One of the best examples I can think of came from one of our portfolio companies that decided to pivot about four years ago. The team had three different ideas, and before deciding which one to go for, launched three product promise campaigns to the target audience of each idea. All three were in the SMB space, so we expected similar conversion numbers for the ads. Two of the ideas yielded a decent 1% click-through rate. The third idea was an amazing 12%. And there was a similar ratio for the calls to action they tested out.

We had two decent ideas. But one amazing one. The company built an MVP based on the third product promise, got immediate love from the market, and eventually was a very fast exit to the main incumbent in their field.

And the potentially “upset” users who engaged with those early product promise campaigns? They signed up with their emails just in the hopes of getting early access later — and became the company’s initial paying customers once the real product was launched. We saved months and millions by checking our product promise before actually building the product. For startups that rely on speed in order to achieve product-market fit before their runway runs out, this is the difference between failure and success.

How expensive is this process? Not expensive at all compared to writing code. In most cases, a few thousands of dollars spent on campaigns will provide sufficient data to find your validated product promise.


A new order of operations for a new world (with marketing skills taking the lead)

No longer is the startup process: “find a problem, build a solution, market it.” The order of operations has been flipped.

Marketing skills (writing, designing, campaigning, and analyzing) now come in a lot earlier. Even before you’ve written a single line of code.

Today we should all embrace a new reality:

  1. Find a problem.
  2. Describe your solution (in words and design).
  3. Market your product promise until you find a promise that a big enough group of people really want.
  4. Then build your MVP.
  5. Keep measuring, building, and iterating — make sure your users are deriving true value from your product.
  6. Keep building & marketing your way to sustainable growth.


Marketing-minded Founders are going to be the new secret weapon. Their startups will learn how to test a product promise first, and will then achieve white-hot product-market fit — and funding, and engaged users, and yes, growth — that much faster.


10 Places for PMF



The Founders’ List: “Status as a Service (StaaS)” by Eugene Wei (Former Product Leader at Amazon, Hulu, Flipboard, Oculus)

Eugene Wei NFX

Eugene Wei NFX


This is The Founders’ List – audio versions of essays from technology’s most important leaders, selected by the founder community.

A Must Listen for all Founders – audio version of Eugene Wei’s hugely popular essay on the role of status in product development. Eugene was a product leader at Amazon, Hulu, Flipboard, and Oculus.

CLICK HERE to read the full article.

Nominate Your Favorite Essay

Each week, we’ll be releasing a new audio essay or memo selected by the Founder community. Nominations are rolling, and can be submitted below:

Announcing our new General Partner, Morgan Beller

Morgan Beller, NFX GP

Morgan Beller, NFX GP

Today we’re announcing our fourth General Partner, Morgan Beller.

Adding a GP is no small matter. These are often multi-decade relationships, so it’s important to find someone who both has the skills, network and mind to give our Founders the advantage, and also has a strong cultural and personal fit.

Morgan is all that, and more.

Here is someone with a trajectory, network, and expertise that is almost unheard of in technology. At just 25 years old she co-founded Libra and Facebook’s Novi wallet for the Libra network, quickly rising to become one of the most sought-out leaders at Facebook. Before that, she headed up corporate development at Medium and played a key role in developing their subscription model. And prior to Medium, it was a16z who first recognized her talent, and recruited her to join them as a Partner on their Deal Team. Morgan is a fast-rising star who is always at the center of what’s happening in tech. In fact, it was our Partner Gigi Levy-Weiss, one of Israel’s most connected and successful investors, who met Morgan when she visited the region in 2015 to learn more about the startup ecosystem. He knew immediately that she was extraordinary.

But it’s what lies beneath that makes her a powerful force for the companies she backs. Founders either innovate on an existing market or they create new ones. Morgan co-created a category-defining product at one of the world’s most dominant companies. She’s well-positioned to be an ally to our Founders who are working through the complexities of forging new markets. These are long, difficult journeys and Founders deserve an investor on their board who gets it. Who understands what they’re doing and will give them the time, space, and support to bring their vision to reality.

It also takes a person who plays on the edge. Who understands Founders who see things differently because they do, too.

That’s why Morgan chose NFX and it’s why we know she is a strong culture fit on our team. We believe Founders deserve a better fundraising experience so we’re building the VC firm we wish existed when we were Founders – one that invests in top people, supercharges them with proprietary software, and connects the entire Founder community with information via our content and software that expedites their success.

We believe in this vision so much that our Partners do not take salaries. This allows the firm to afford a 30-person team to support our companies and community. It also means we’re more aligned with our Founders because we don’t make money until they do.

We want to build a better tech community. One that honors the true Founders and gives them a home less encumbered with the money-focus, press, and distractions of today’s startup climate. We believe the next generation of great Founders deserve this better environment, a concentrated network of like-minded creators that serve as a compass on their Founder journey.

As Founders before NFX, we started 10 companies that exited for more than $10 Billion. We are Founders across multiple industries and geographies, with a focus on both Silicon Valley and Israel – the two most important centers of excellence in technology. Morgan as our new GP makes NFX even more formidable.

If you are one of the “crazy” Founders, if your ideas live on the edge of technology, if you’re a contrarian thinker who will stop at nothing to build your vision – talk to Morgan.

We have no doubt she is going to be an exceptional ally to the world’s most inventive Founders.


Meet Morgan – 6 Questions

What’s your background in tech?

I grew up on Long Island, New York. After college, I made my pilgrimage to California and never looked back.

My first job was at Andreessen Horowitz, where I was on the Deal Team. For the latter half of my time there, I was focused primarily on early-stage investing.

From there, I went to Medium and led corporate development. Then I went to Facebook where I initially joined the corporate development team. But shortly after joining, I realized there was no one focused full-time on blockchain, crypto, etc. So I made my full-time job figuring out what Facebook should do, if anything, in that space.

That led to co-founding Libra and Facebook’s Novi wallet for the Libra network.

What brought you back to startups and VC?

Being part of Libra from the earliest days made me realize that I love that phase of a project – the sitting around and figuring out what we should do. I’ve always found myself on nights and weekends working with Founders, whether it’s a friend or a former coworker who has an idea and wants to think through the name, the business plan, who they should go raise money from. It’s incredibly rewarding and it’s really fun. To have the opportunity to come back and have that be my full-time job is pretty awesome.

What made you choose NFX?

There is the “what”, there is the “who” and there is the “where.” For the “what”, I learned that I love working on the earliest stages of projects. I get the most energy and excitement from sitting with small teams around a whiteboard. On the “who” – I feel lucky that I’ve known the NFX team for a while and I’ve been able to watch them build NFX from a garage to the brand and force in our industry that it is today. And then there’s the “where.” I have a close personal and professional relationship with the Israeli tech community (I actually met Gigi on a trip there five years ago!). Israel is one of one as far as the talent, energy and passion that the country produces. I was particularly drawn to NFX’s focus on these two geographies.

The opportunity to do seed investing with a global lens and the team that wrote the Bible on network effects and marketplaces was an opportunity I couldn’t pass up.

What kind of Founders should come talk to you?

My favorite Founders that I’ve ever worked with, invested in, and are friends with have two things in common. One is they’re different. They’re contrarian. They really strongly believe in X where the world believes in Y, whatever it is. They have “a thing”. The second is they have this winning mindset, which looks different in different people. But if you have it, you know who you are.

What kind of companies are you interested in?

If you think of a startup as an equation, there are many variables and very few constant variables over the lifetime of a company. So the product changes, the market changes, the brand changes, the world might change. Given that, the two constant variables that I’m looking for are, one, a strong understanding of defensibility, specifically network effects and, two, a Founder who is already living in the future and just taking everyone else along for the ride.

What will you bring to the table for the Founders you back?

Between Andreessen Horowitz, Medium, Facebook, Libra, and the Libra Association members, I feel very lucky that I’ve been able to work with and learn from the best builders out there. I’m excited to take those learning lessons with me to NFX. Having been in the center of all these networks, I have a tight-knit community of high caliber engineers, product leaders, designers, investors, and operators to assist Founders in building out their own teams and networks.

Good vs. Great Companies: The Unseen Truths of Breakout Success

Good vs Great Companies NFX

by James Currier (@JamesCurrier). James is a General Partner at NFX, a seed-stage venture firm headquartered in San Francisco.

Good vs Great Companies NFX

For early-stage Founders, it’s rare to get a candid view into what happens behind the scenes of companies that break out from the pack. What’s clear is that successful Founders operate differently. Sometimes in large ways, but often in small nuances that tip the scales of success.

Even more rare is hitting that kind of success twice. As my friend Sarah Lacy titled her book, “Once You’re Lucky, Twice You’re Good.”

In this NFX podcast and essay, we get a look inside these kinds of companies and Founders with Selina Tobaccowala. As the co-founder of Evite (sold to IAC), CTO and President of SurveyMonkey, and then cofounder of Gixo (sold to Openfit), she has built companies that have shaped a generation of products and been used the world over.

We talk about the tipping point from good to great in early-stage companies, covering co-founder dynamics, hard conversations, managing risk, raising VC, selling your company, and starting again.

There are always outliers, but these are the things we’ve both found that often separate the good companies from the truly great ones.

Let’s jump in.


Great Founders have these hard conversations with co-Founders before they even start.

  • One thing I tell cofounders when they’re just starting: There are certain tenets you should agree on upfront. Including how and when you would sell.
  • Ultimately when those hard decisions come — whether it’s an offer on the table, or you’re dealing with an employee issue, or you’re trying to figure out how much funding to take — you have already established some of that base level conversation. You need to practice actually having that dialogue and having that conversation so that you can have that honesty, and you can have that rapport when you’re actually walking into it.
  • Because later when you’re trying to make those hard decisions — taking or leaving an offer, letting go of an employee who is a human being — it’s much harder to make those decisions in the heat of the moment if you haven’t established some of your base principles. You need to do that before you actually start.
  • Al Lieb and I paired up in our third year at Stanford (which was his final year and my junior year) to start Evite. Then we got together again to found Gixo over a decade later. In between, I had been CTO and then president of Survey Monkey. Al had founded ClearSlide. Our experience in 2016 was completely different from 1997 because we had both founded and run companies. We had stayed very close as friends and we knew that we were very compatible. Most important, we knew we could learn from each other. There’s also just this openness and honesty that we have with each other.
  • When we started Gixo, literally on Day One we laid out on a big whiteboard the type of company we wanted to build from a cultural perspective. Then we laid out what areas of responsibility we wanted and what we each wanted to learn. We did this to figure out who is going to do what because we do have some overlapping skill sets.


This contrarian advice is often the difference between “Good” & “Great” Founders.

  • Many people will advise you otherwise but for early-stage Founders, it is important to start building relationships with larger companies very early on. Even if it’s just introducing yourself and talking about partnership. Founders should start that as early as possible.
  • Here’s why — It gives you better optionality should you need to be acquired or raise capital from a strategic partner later down the road, one or two years in. Yes, you have to focus on your product and customers or on raising money and this is all hard — but you should also be spending time creating these relationships as well. It gives you so many options a few years in. This is the difference between good and great Founders.
  • With Gixo, I had started a set of those conversations early on. As you start growing and share traction, it’s good if you’ve already built some of those relationships. Or if they’re starting to think about expansion, then at least you’ll be front of mind. At Gixo, because we had a relationship with Openfit, I was able to pick up the phone a few years later and tell them: “Somebody is interested in buying us. But you’re a company that we already know and love. Would you guys also be interested?” Turns out they were.


Navigating Advice


Great Founders nail the balance of Internal vs. external time management.

  • Everything comes down to time that you’re spending. When you’re really early stage, you want to be mostly internally focused (85%, 90%, 95%) on what you’re trying to build. You’re trying to figure out the product. You’re trying to figure out for B2C and you’re not obviously focused on the client-side. But there has to be a portion of your time that’s reserved for external — whether that’s understanding the market better or talking to future partners.
  • There’s obviously also the talking to investors part, which sometimes takes 100% of your time, but having some of that balance of keeping your ears and eyes open as a CEO or Founder — that is part of your job.
  • This might be another characteristic that distinguishes great Founders from merely good Founders. The good Founders end up a year or two in without a lot of options because they didn’t put in the extra time to go make all these relationships in the market. They’re left without options. They might end up shutting down their company if they run out of funding rather than getting a small acquisition out of it and a future for the business.


Great Founders don’t build companies to get acquired.

  • I think that you need to build your company with the idea that you want to grow it, build it to go public, or build it to be a big brand.
  • That’s what we always set out to do. I think that if you have the view from the beginning that I’m building this to sell it or flip it, you’re not going to make the right day-to-day business decisions.
  • Great Founders build because that’s what they need to do — they have no other choice.
  • Still, they also build relationships to give them optionality as mentioned above.


Great Founders seek the risks in their ideas and prototype that — before anything else.

  • We didn’t necessarily immediately come to the Gixo idea. Al and I both knew we wanted to start something. We said: “What’s the best idea we can come up with in a reasonable amount of time that we’re passionate about?” We gave ourselves a timeline. We gave ourselves till eight months and said, “Can we prototype, up to prototyping two different ideas and see if we can validate an idea? If not, then we’ll go find other things.”
  • So we did a whole bunch of research. We had a few different product ideas and prototyped a bit, did a bunch of consumer research. The Gixo idea emerged.
  • The biggest risk of the product, we thought, was would it be weird to essentially have somebody voicing over your exercise because the way the product works is there’s a live human being who is looking at all the data whether it’s a visual data of a camera if you’re indoors or it is actually looking at your pace, your elevation, your step count. They’re saying. “Hey, James. You’re about 3% away from your goal. You can push it.” Or, “Hey, Jane, you’re going up a hill. I know you can do it.” They’re really personalizing. Our question was “would people find that strange? Would people find it strange that someone was watching them?”
  • That, we felt, was one of our biggest risks with the idea. We really just prototyped that piece and got a whole bunch of users in to validate it.


Idea Frameworks



“Stealth is Stupid” — Great Founders get feedback as early on as possible

  • It’s surprising how few Founders do their research — because many of the ideas that people are thinking about today have been tried before in various formats.
  • For Founders, competitive and market research is extremely vital.
  • Just because an idea was tried before, that doesn’t mean that you shouldn’t try it again. Things change. It’s not that ideas can’t be redone. It’s understanding why those things failed. Was it a core problem with the business model? Was it something in the age of time or is it actually a bad idea?
  • Many Founders are resistant to actually comparing notes with others who might have tried the same thing before. I think there are actually two aspects. One is arrogance that “I can do it better.” Then, I think there’s the second piece of it which is “Oh, I don’t want to tell anyone my idea because they might take it.”
  • Dave Goldberg was the one who kept saying: “Stealth is stupid. You need to collect information, talk to people, get their feedback.” There’s this wealth of knowledge out there. Be open with people. It’s going to help you get the best information back possible.


Great Founders talk to their users — a lot. It’s actually an acquisition and retention tool.

  • You always want to be running an onboarding test or a new user engagement test at all times because getting that initial user to start — whether it’s to send that survey, whether it’s to send that invitation, whether it’s to actually go exercise — that is always the hardest challenge when it’s easy to download an app. It’s easy to log onto a website or start a free trial, but getting that user to take the first action is so hard.
  • Startups are often too wary of asking a user questions. I’ve found more and more that people actually are willing to answer those quick questions so that you can get to that experience that is more customized and personalized to them. I think that’s underused.
  • You can’t be scared of your users. Just have a dialogue. Be one with them. Often as builders, we just feel like, “Oh, I’ll build it.” Then they’ll do it or they’ll not do it. But in fact, there’s an intermediate space where once you start engaging them with whatever you’ve built, you can start to learn very quickly just by actually talking to them. Sometimes, Founders are fearful of that.
  • Think about what are those light-touch engagements you can get them to do initially. It is potentially just answering a couple of questions, giving them some information back, but it’s like, “How do you think about what are some of these light-touch engagements initially or activations initially,” so that you then can get them to take that really retentive step.
  • Product virality was a key success of Evite. We were one of the first, if not the first product out there, but I think the big differential for us was that we were very focused pretty early on at AB testing.
  • We were constantly trying to look at that viral loop and look at how do we take one of the invitees and turn them into a creator. Back then, I’m sure the numbers have changed, but the average Evite was 19 people. How do we take one of those 19 people and get them to essentially register and then send their own invitation out?
  • That was the big key that we focused on. What was that viral coefficient? This was obviously before all these words were nomenclature in the market. What worked well with Evite was that we were able to do a bunch of optimization to get people to register, get people to understand the use cases, and how broad they were and send out their invitations. We were able to grow pretty naturally.
  • The other big piece is really starting to look at what are the characteristics of people who retain. Obviously, getting a user to stick with you once you’ve acquired them, every 0.1% improvement in churn will have a massive impact on your long-term business.
  • Monitoring churn — especially in consumer businesses — helps you figure out what are the characteristics of the users I’m acquiring that retain better. What can I get them to do in the activation stage? What are those one, two, three things that I get them to do that then actually ties to churn?
  • The businesses are really built on retention because that means defensibility, and defensibility creates value.


Great Founders know to sell when there is no true path to a higher return (My Evite acquisition)

  • Background: We started Evite in 1997, launched the product in the summer of 1998, and took our first round of funding at the beginning of 1999. We ended up taking a lot of funding — $37 million in total.
  • One of the big mistakes we made at the time was that we took a lot of funding. It was the dot-com boom where everybody was taking a lot of capital. What happened in 2001 was that the digital advertising market also collapsed. That was our main revenue stream.
  • The decision to sell: It became very, very clear, given the market crash in 2000 and 2001, that a path to get a financial return for the investors was going to be too hard. We got a lot of pressure from our investors to sell. At that point, investors were taking the approach of just getting back whatever capital they could from properties that still had some value.
  • We were a good company. People were excited about the product. So investors saw that they could get a good chunk of the capital back and wanted us to sell.
  • At the same time, we were looking at how we might expand the B2B side for corporate events and how to create more of a community. Everybody had their profiles and friends already on Evite. Given different circumstances, we might have taken that path.
  • But for Evite, at that time, there was really no way not to sell. We had lost majority control. We could see no path to a higher return. Given the environment at the time, it would have been difficult to achieve a $150M or $200M valuation in a reasonable time for investors. Investors are looking at least for that sort of 5X return, if not more.
  • So, how did we sell? Because Evite had built this brand, it was a question of: “Okay. Let’s go and try and see if we can sell the business.”
  • We did get an offer to sell for $180M. An executive on our team turned it down without discussing with Al and me. It was a good valuation. But in retrospect, it didn’t matter. The acquiring company was going to buy us with stock. That company is no more.
  • We ultimately sold to IAC which allowed our investors to get their capital back. So it all ended up for the best, given the circumstances.


How to make hard decisions: Raise More or Sell? (My Gixo acquisition)

  • With Gixo, it was a very different story from Evite. We had taken a lot less capital — a $5 million seed round.
  • One of the big learnings we had is fitness is not that viral when you start thinking about the non-fit customer. They don’t actually want to work out in front of each other in any way. That was something that became very clear to us that virality is not as natural in fitness.
  • We were doing pretty well but we weren’t crushing it. Our unit economics were decent. We brought our payback period to about 12 months based on our customer acquisition cost (CAC). Investors really want to see about a six-month payback period. We were constantly iterating and improving, but it still became clear that we were not going to easily hit the six-month payback period.
  • With Gixo, we made the decision to sell based on a number of factors, but the biggest was this question of the required next capital raise.
  • That is partially why we decided to sell the business because we realized that to grow Gixo, we would need to take a large, large amount of capital to create a brand. If you look at fitness brands and you look at companies, Peloton has been so successful and it’s a great company, great CEO, but they’ve raised a lot of capital. You have to build that brand. We figured we’d need to raise $20 million or more in order to spend what is required to really build a brand. That’s what we would need to put the pedal to the metal on marketing and drive CAC down.
  • It was not going to be an easy raise.
  • There were 2 paths ahead of us. We told our investors very early what we were debating. We said we were open to getting acquired, at the very same time we were having fundraising conversations.
  • We had gone and pitched Raine Group which has both a VC and a private equity arm. The VC was for our funding, but it turned out their private equity arm was a primary investor in Beachbody Openfit who ended up acquiring us. Their VC side had a conversation with their PE side. It was a little bit of just luck in the process. I met the CEO of Beachbody and was just very impressed with him.
  • At that point, Al and I were starting to figure out what the terms of a new venture round would be and how much we would be diluted. The terms weren’t going to be fabulous compared to our strong seed round. On the other hand, we had this one very interested party in Beachbody. Then, I was able to get another party to the table — a company we had had partnership discussions with. That gave us a lot more leverage and really enabled us to get a better exit on better terms. That’s how we decided to sell vs. fundraise more.


Raise more or sell?


Great Founders weigh the financial — and the emotional — trade-offs.

  • Whenever they are considering funding versus an acquisition, Founders need to figure out if it’s worth it for them.
  • They need to ask themselves — and each other — “Look, if we’re going to raise another $20 million, we’re going to get diluted, we’re going to own x% percentage of equity. On the other hand, we’ve got an acquisition offer of $20 million, which means we will make X amount if we sell today. Or we could go another two years after raising this $20 million, but then we’re going to own less. What would we need to sell for, in two years, after getting that dilution, in order for us to make the same amount of money? And what’s the risk between now and then of actually getting there?”
  • These are not simple questions to figure out. VCs think about these types of questions all day long. Founders typically do not. The best source of information on this (besides lawyers) is other Founders who have been through it. Ask them for advice on dilution and execution risk.
  • Al and I had decided on where we would sell, at the beginning. Our risk tolerances were different based on our history. Reid Hoffman, who was our board member and mentor, said: “When you have two Founders, you always want to think about the lowest common denominator. Because if you don’t take an offer — when one Founder actually wants to sell — and then you work at this for 2 or 3 more years and then you can’t get that same liquidity for your other Founder… how can you look them in the eye?”
  • Whichever Founder has the lowest risk tolerance that has to be the risk tolerance you go with. It makes so much sense because it’s hard to push someone to be more risky. It’s easier to push somebody to be less risky.
  • That advice was so prescient. It’s exactly why you really want to make sure you’re having that open conversation with your co-founder.
  • Ultimately the people and the friendship are going to be the most important things in life.
  • So it was a question of what return would we need to get, if we raised funding, to end up in the same place where we would end up with the acquisition offers on the table. That’s just the pure financial side.
  • Are you willing to take that risk? That becomes a very, very personal decision based on what else has happened in your life and where you are.


Great Founders understand leverage.

  • When someone is interested in buying your company, obviously you have to figure out how to set some pricing.
  • James: I love pricing psychology. Who puts out the first price is a big question. When I was at HBS, they taught that you should anchor. You want to be the first one to put out the price, to anchor the conversation, but in practice, many people have seen that whoever puts out the first price loses.
  • At Gixo, we ended up putting out a range based on what our seed valuation was, plus where we were at that moment.
  • Always expect that the counteroffer will come in at the lower end of your range. If you say 20 to 25, then they hear 20. If it comes too far below your range, then they are not serious.
  • Once you have the counteroffer and it’s firm, you want to go pretty aggressively to shop for other offers. We went to three to five different people and said, “You’re someone I like. I respect your company. I respect your values. You’re somebody I’d really like to work with. Is this something that your team might be interested in?”
  • Getting two people to the table makes a very big difference in terms of creating negotiating leverage.
  • Be respectful in your offers and terms. Keep them reasonable. You don’t want to leave a bad taste in their mouth if they may be your future employer.
  • Of course, you also want to leave as little on the table as possible.


Great Founders weigh risk/reward when selling for cash vs. equity

  • When selling your company, the decision about taking stock or cash is exactly the same mindset that you would have thinking about any startup employment offer. If you are somebody that is in a position where you can take more equity and you believe in the company, it’s higher risk but higher reward.
  • In a private company, it comes down to this: do you have faith in the company buying you, and what was their last valuation? If you’re taking equity, it’s really important that you understand what was the last valuation that was given by investors versus revenue, and how comfortable you are with that.
  • Then it’s just the same compensation decision: how much do you want to take cash out and how much do you want to let ride?


Great Founders talk with their employees to keep momentum

  • At Gixo, when we faced our raise or sell decision, after we talked with our investors, we turned to our employees. We were open with them in terms of letting them know we were looking either to sell or raise funding. Whichever path, you want them to be excited and involved.
  • I think employees actually appreciate the fact that you’re saying, “Hey, we’re open to options, and we’re going to see what’s best for everybody.” It’s critical that they feel comfortable enough to continue focusing on the key metrics and on growing the company, no matter what is happening.
  • Whether you’re trying to do your next fundraise or you’re trying to get acquired, the better your numbers are, the better the outcome is going to be for everybody.
  • Just stay focused on your 3 to 5 key metrics. If you can get your team focused on just keeping the numbers growing that you cared about last month, then that’s a good way to keep everybody focused on what’s going to be best for the company through the acquisition as well. You’ve got to keep that momentum going.


Great Founders address the 2 big reasons why deals go south

1. Key employees are not on board

  • Being involved in a bunch of the acquisitions (Evite and Gixo — plus acquiring 10-12 companies while I was at Ticketmaster and SurveyMonkey) one common way I’ve seen deals go bad is if some of the key employees are not on board.
  • When you’re acquiring a company, you’re not just buying the asset of the product. You’re also buying the talent. That’s why I feel like involving the employees and getting them on board on the earlier side is actually a good thing because that means that you’ve had that discussion and what that actually means for them.
  • That’s also where things come into play like, “Okay, can we do retention packages? What is the sort of equity and job offer packages for the employees?” Those things are really important because that’s where a chunk of the value comes sometimes to the employee pool.

2. Non-transferrable contracts

  • The second reason deals go south is if there are any issues of contracts being non-transferable with a sale or if there’s anything that puts actual revenue at risk. That’s more when you’re talking about enterprise business or even something like venues with a company Ticketmaster that I saw versus a pure B2B business where almost everything is transferable.


To listen to the full, candid conversation between James and Selina, you can visit the NFX podcast here.


Fundraising Checklist


Connect with James Currier