Operations

Obvious, in Hindsight

As our firm crosses the ten-year mark, our conviction in world positive venture capital is stronger than ever

Obvious | 05/21/2024

In 2014, we founded Obvious with the simple idea that the most valuable companies of our time would be the ones solving humanity’s biggest problems. We set out to invest across three huge surface areas: planetary health, human health, and economic health. These were broad by design, enabling a diverse portfolio across disparate industries, and huge in their potential for world positive impact.

Within these three pillars, we defined a set of contrarian investment themes, including:

• Climate investing in renewable energy and electric mobility, while the dust was still settling from the CleanTech 1.0 boom and bust.
• Healthcare investing in value-based care when the Affordable Care Act marketplace had just launched and was off to a rough start.
• Software investing in fintech startups that closed gaps for individuals and small businesses at a time when most software companies were focused on moving up market to large enterprise clients.

Great ideas are obvious in hindsight, and it’s tempting to only shine a light on the big winners. Of course, we also had some bad ideas in hindsight, like investing in shared carpooling right before Uber launched Uber Pool and Lyft launched Lyft Line. Along the way, we practiced humility and tried to learn and grow from our mistakes.

Frontiers to Flywheels

In our first year as a firm, our co-founder Evan Williams said “We should invest in companies we wish existed in the world.” This sentence became a rally cry for boldly pursuing new frontiers like plant-based meat and lab-grown diamonds that didn’t fit squarely into traditional venture capital boxes.

Investing at the frontier has become part of the Obvious DNA, and the knowledge we gain from arriving early at a new category delivers compounding interest. Having a prepared mind and a deep network within a new frontier helps us find and fund the best teams. When we get it right with two or more breakout companies, that frontier becomes a flywheel.

In venture, once a flywheel is turning it becomes easier to attract the next wave of founders building the next wave of innovation in that space, and so the flywheel turns. Virta Health (OV1) leads to Devoted Health (OV2) to Galileo Health (OV3).

When we get it wrong, we try to learn from that and upgrade our investment theses. In our first fund, we had two failed startups trying to build software for small businesses. We learned that the CAC < LTV equation is uniquely challenged in the SMB segment, where there is a high rate of small business customer mortality. Fortunately, we also had breakout success with Gusto, an investment that taught us that SMB startups need to have pricing models where revenue grows as your customers grow, enabling your base to deliver growth net of churn.

Ownership Matters

Much has been written about the “power law” in venture, but it’s hard to put into practice. In our first fund (OV1), we demonstrated that we had access to exceptional founders building world-changing companies. As a new fund with limited brand power, however, we did not always get strong ownership in those companies. Sometimes, we fought our way into rounds led by other firms and, in the process, found ourselves with a small piece of a really amazing company.

As our brand became better known in Silicon Valley, we put that hard-earned credibility to work and have steadily increased ownership in our investments. Today Obvious often leads Series Seed and Series A rounds. This was our most important early lesson, as it’s critical to make the venture math work for us and our LPs.

Lead With Values

World positive is not just a marketing term for us at Obvious; it’s a core part of our purpose. We’ve published a Credo to tell the world not just what we do, but why we do it. And we ask founders why they’re building what they’re building. We select companies with an inspiring purpose and a flight plan to solve hard problems and move humanity forward.

Looking back over the last ten years, we’re proud that we’ve been consistent in our approach to leading with values and supporting purpose-driven entrepreneurs. We believe this is a big reason why great founders have chosen to partner with us.

With the tectonic plate shift of Artificial Intelligence propelling us into the next decade, we see purpose and values as the through-line to our work. Emerging theses in AI Ethics and Generative Science have the potential to solve the unsolvable for humanity and create enormous value, both financial and societal.

We’re grateful for the founders, limited partners, and co-investors who have joined us in our first decade of world positive venture capital. We can’t wait to see what happens in the next one.