Investing in someone is primarily a business relationship. It doesn’t mean you don’t develop a personal affinity – it’s best when you do! – but creating an enduring bond transcends the question of founder:VC dynamics and is often not even directly correlated with economic outcome. Our participation in Anchor (later acquired by Spotify) generated both a return and a friendship between us and the founders. Specifically I’ve had the chance to spend meaningful time over the years with Michael Mignano as he went from startup CEO to Executive/Angel Investor and now VC Partner at Lightspeed. Our conversations are always enjoyable, spanning tech, parenting and culture, so I decided to ask him Five Questions here.
Hunter Walk: You got to work with a number of different VCs on your cap table for Anchor. Who was the best one and why was it Homebrew? Seriously though, were there things you saw as a founder – or an angel investor in other people’s companies – that informed your own approach to venture now?
Michael Mignano: Throughout my time building Anchor, I met and pitched many, many VCs. And I think if you were to look at all of those interactions and score them on quality of the “user experience”, the majority (but not all) would probably qualify as poor UX. I don’t think this will surprise anyone. On the flipside, there were absolutely a number of investors I met with, including the ones with whom we ended up working very closely, which were phenomenal!
Ironically (or perhaps not), I believe the qualities of those investors overlap quite a bit with the qualities of great founders: speed, conviction, authenticity, respect and directness in communication, clarity of thought, human connection, empathy. And so those are the investors I’ve tried to emulate. Of course, I don’t always get it right, but I’m trying. I’ve basically tried to take my “founder brain” and just flip the goal to investing and helping, not building a company.
Again, I get it wrong sometimes and now, being on the other side, I see how high volume this job can be at times. And so I do have a bit of empathy for the investors whom I considered “bad UX” back then. At the same time, like most things in life, if you put in a little effort and you stick to your principles, I think it’s totally possible to make sure that when founders walk away from their interactions with you – whether you lean in or pass – that they have a good feeling about how they were treated. So that’s what I’m trying to do.
HW: As your start date was approaching you asked me whether I thought it was a positive or negative to begin a venture career during a downturn. Do you remember what I told you? Was I right? [note, for a variety of reasons I told Mike that I thought it was a positive for him]
MM: I was very excited by your advice on this topic. As a startup founder, you get into this default mode of moving really fast all the time and making quick decisions. And that was definitely who I was during the Anchor days. But then, after spending a few years at Spotify, I grew to appreciate the more thoughtful, strategic approach embedded into the culture of that company.
My boss, Gustav Soderstrom (Spotify’s President and CPO) always used to say, “talk is cheap, so we should talk a lot.” What he meant was that it was far more expensive to move too fast, make a mistake, and spend months building the wrong thing. So instead, we should spend the time to think, talk, and align as a team before kicking off something critically important for the company. I was hoping your advice would be right because it would mean that my partners and I would get to think strategically and not just be in “react mode” at all times.
To answer your question: you were mostly right. I was angel investing a lot during the FOMO era and it was just insane; it doesn’t feel like that anymore. However, I think neither of us had any idea that a few months later, AI would explode in the way it has.
HW: So I have this theory about one contributing factor to why you sold Anchor to Spotify when you did. To be clear, I understand and believe it was a great decision – you got to continue the mission at an industry leader with very good deal terms relative to what could have happened given the market in general and podcasting economics specifically. At the same time I do tend to think people potentially overestimate the challenges of things they haven’t done before while feeling perfectly confident playing to their strengths.
Pre-revenue when Anchor was “just” a product company you were all brilliant iterators and relentless explorers. When Anchor needed to become a business was when you sold. And my armchair psychology was because you and Nir had not previously built an ad/sponsorship/commerce business at scale the risk in getting it right seemed very high. Whereas if say one of you came from AdSense at Google, you might have been like, yeah this is tough but I’ve done it once already, let’s role. Am I directionally right or am I projecting my own issues?
MM: The risk of getting the ad platform right was not our chief concern; we were concerned about other risks, one in particular which I’ll touch on below. However, in addition to the risks, there were also just so many positives about teaming up with Spotify. That combination made it a no-brainer for us. Here were the main contributing factors:
1. No one was poised to invest in (and win) podcasting like Spotify. Apple had made it clear to us through many prior conversations that they were never going to take the medium that seriously (beyond yearly incremental updates to the Apple Podcasts app). And other platforms’ strategies seemed directionally pointed at exclusive content, not building platforms. Spotify’s plan was much bigger than that. It was more along the lines of “win podcasting by any means necessary, including both content *and* platform strategies.” Anchor’s mission was to democratize audio. We felt that to do that, we needed to both enable everyone on the planet to make a podcast while also innovating on the actual consumption format. There was no question that Spotify was our best chance to do that, even more than staying independent. We had all the creators, they had all the listeners. It was a match made in podcast heaven.
2. While there was a minor concern about the ads risk (per your question), we felt there was more meaningful platform risk to the future of the Anchor product offering. More specifically: while we believed Spotify to have greater upside, Apple Podcasts was the clear dominant listening platform at the time, and we relied on distributing to both platforms to deliver value to our creators. However, Apple had repeatedly threatened to cut off our distribution (despite our many attempts to partner with them), and their threats had grown more immediate and credible. We felt that if Apple cut off our distribution to Apple Podcasts, the value of the Anchor offering would be greatly diminished. This was a much bigger risk to the business than landing the ad platform, and it was very much top of mind for us when we sold.
3. Let’s face it: a bird in the hand is worth a lot. When we considered the offer by Spotify, it was clear that it would absolutely be a big win for our users, the entire Anchor team, our investors, my cofounder, and me.
Looking back: while podcasts as a category continued to accelerate after we sold (likely a result of Spotify and their aggressive investments) and at times I questioned if we sold too early, I’m now confident that the decision to sell was the right one. There were few podcast acquisitions after that eclipsed the value of ours, and those that did were only incrementally more valuable. And it now seems the podcast startup market has peaked, with a very uncertain future moving forward. As a result of all the acquisitions, companies like Spotify accomplished their goal. Could Anchor have surpassed the entire podcast industry if we had stayed independent? Who knows, but I have no regrets about where things landed.
HW: As a former CEO, when you back founders, how do you navigate an impulse to imagine how *you* would build the company versus understanding what and how they want to build? When the two don’t match up – different visions – is that something you just keep quiet on?
MM: Right when I started at Lightspeed, a very smart and well known investor correctly warned me of this impulse. I didn’t really understand it at first. But a little while later, I found myself working on a deal and quickly talking myself into why the company would make a great bet because the path forward for the company was so obvious to me. But when I really zoomed out and dug in with the company, I realized they had a completely different vision for the path ahead. The investor’s advice came ringing back. Since then, I’ve worked very hard to make sure that when I’m speaking to prospective companies, the conversation (and decision) is focused on how they want to build the company, not how I or anyone else thinks it could or should be done. I have found that this both leads to 1) better decisions and 2) better working relationships with founders and teams.
HW: As one of the faces for the NYC tech scene – exited founder, then angel, now VC – where do folks outside of the local network underestimate the city’s startup potential and what’s one piece of ‘tough love’ you’d give founders in NYC about how the community needs to continue developing to make even bigger impacts?
MM: When we were building Anchor, we had a few VCs ask us if we would move the company to Silicon Valley in connection with their commitment to invest. While we never actually considered doing it, I learned to understand why they were asking, and believed that it actually had merit: the concentration of engineering talent in SV is unlike anywhere else in the world, making it much, much easier to hire for PDE roles, especially engineering. It’s a true competitive advantage, especially against companies elsewhere in the world. But throughout the Anchor journey, I came to believe that NYC is also a very special place to build a company.
What it lacks in terms of volume of top tier engineers, it makes up for in diversity of thinking, lived experience, and concentration of other professions. If you’re building a fintech startup, you’re near the financial epicenter of the world. If you’re building a media company, you’re near television, news, music, and film. There are so many other examples. And also, there’s a fierce camaraderie baked into the DNA of the city. NYC is an awesome place to live and work, but it’s also a tough place; as a result, people band together and want to help each other. I’ve noticed this time and time again and I believe it to be a true advantage to building a company in NYC.
As for tough love: like other cities, those of us who are in and around NYC have gotten very comfortable with working remotely, myself included. And while I’m a big fan of distributed work, I also think it’s time for startups to get back to working together IRL. There’s nothing like the energy you feel when building a startup with everyone in the same room. But also, there’s nothing like going through the most formative years of your career in the city that never sleeps. Beyond the culture that gets built on your team during lunches, happy hours, and meetups, the people you can meet and bond with in this city never ceases to amaze me. It truly feels as though anyone can accomplish anything in New York City. But if you’re not actually spending time with people face to face, you’re missing out on arguably the biggest benefit the city has to offer.
Thanks Mike! You can follow his writing and everything else here.
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