Venture DifferentlyㅣAltos Ventures, Tae Yoon

What are the core principles of Altos Ventures?

Altos Ventures, guided by the teachings of Professor Jack McDonald, follows a set of core investment principles that have shaped its approach. These principles are essential in directing Altos's strategy and focus:

• Power Law Investing: In any asset class, only a select few companies drive the majority of returns. This understanding guides Altos Ventures to identify those few ventures that can generate exceptional outcomes.

• Compounding Value: Significant value creation occurs over the long term, particularly in years 10, 15, and 20. Altos Ventures embraces patience and supports businesses through decades, allowing the compounding effect to unfold.

• Hedgehog Concept: Derived from Jim Collins' work, this principle distinguishes founders who are intensely focused on one passion or niche. Altos Ventures looks for hedgehog founders, who possess the dedication and vision necessary to navigate the enduring startup journey and turn challenges into opportunities.

These principles not only influence their investment decisions but also help in fostering long-term success and durability in the companies they support. For insights into other distinctive investment strategies, explore how Eric Kim empowers exceptional entrepreneurs.

How does Altos Ventures apply the power law in investing?

Altos Ventures applies the power law principle by identifying a few companies that can drive substantial returns.

In any asset class, a select number of ventures generate the majority of the outcomes.

This is even more significant in venture capital, where only a handful of companies in each vintage yield the best results.

Altos focuses on uncovering these rarities early and supporting them toward high-value creation.

For instance, they initially partnered with Roblox by investing $1.5 million and continued to invest hundreds of millions until its IPO, showcasing a keen eye for potential.

Finding these key businesses allows Altos to maximize impact and returns.

Why is compounding crucial to Altos Ventures' success?

Compounding plays a pivotal role in Altos Ventures' investment strategy, acting as a catalyst for long-term growth. The firm’s patience in nurturing investments over decades allows the value of its portfolio companies to blossom exponentially during the later stages.

One compelling example is their early investment in Roblox. Altos invested $1.5 million initially, then continued to support the company with hundreds of millions over the years. Such commitment exemplifies their focus on maximizing a venture's potential by backing it as it scales.

This steadfast approach ensures that value creation begins to accelerate, particularly in years 10, 15, and beyond. By harnessing the power of compounding, Altos aims to unlock unprecedented growth and enduring success for its portfolio companies. Interested in learning more about effective early-stage investments? Discover how Y Combinator identifies potential winners early on.

What is the hedgehog concept in startup founders?

The hedgehog concept, as described by Jim Collins in his renowned book Good to Great, centers on deep focus. This idea contrasts two types of thinkers: hedgehogs and foxes.

“Hedgehogs know one big thing passionately, while foxes pursue many unrelated matters.” - Jim Collins

At Altos Ventures, the hunt is for hedgehog founders. They identify individuals who are fervently dedicated to solving a specific problem. This steadfast focus reflects their life's work.

Such dedication is crucial in navigating the non-linear challenges faced by startups. Altos supports these founders, ensuring they have the backing to pursue their vision over the long haul. Partnering with visionary founders can significantly impact a startup's journey.

To learn more about perseverance in entrepreneurship, read about navigating the entrepreneurial journey for impactful breakthroughs.

How does Altos Ventures view its role in startup success?

Altos Ventures sees its role in startup success as akin to that of a preschool teacher guiding children.

Much like teachers who understand children's developmental patterns, Altos brings extensive experience across numerous companies, allowing them to recognize growth patterns.

They collaborate closely with founders—who know their businesses intimately—to combine insights and foster optimal growth.

The firm's approach is all about maximizing partnership and guidance. By leveraging pattern recognition, they aim to provide valuable insights while respecting the founders' deep understanding of their own ventures.

Altos Ventures' focus is to increase the odds of success by steering startups in a direction that aligns with future opportunities and minimizes risks.

For further exploration of how conviction fuels startup success, delve into insights on building the future with conviction.