Some thoughts about competitive portfolio companies

At this point, between our three funds, we have over 50 startups in the Spark portfolio.

We have specific theme and we are focused on a number of categories that we are passionate about. We do our best to describe those on our website

Given this interest and focus, it’s often that we will see startups that seek our support that are either directly or indirectly competitive with our existing portfolio companies. 

I’ve seen plenty of firms (big and small), fund direct competitors. It’s not our style and we are proud of that. 

If it’s a dead on direct competitor, the choice is simple – we do not invest. To be clear, sometimes some of our startups evolve and go into a new line of business over time and end up competing with an existing portfolio company. That is beyond our control.

But what is inside our control is funding direct competitors at the initial point of the investment.

If there is a potential for competition we ask the founders (existing and the new potential one) if they are comfortable. We listen to their feedback and take that extremely seriously.

One example amongst serveral: we were existing investors in Tumblr when we made the Twitter investment in 2008. Both founders knew that and I asked David Karp, the founder of Tumblr, if he was okay with our investment in Twitter. I never thought the companies were competitive as I used them both for different things but I wanted to make sure. David gave me his support and we are fortunate to have backed Tumblr and Twitter. 

Sometimes we are too prudish with this approach. We haven’t invested in any games startups because we are investors in OMGPOP. The gaming category is huge and quite diverse. A few years ago OMGPOP didn’t have any mobile games on their roadmap. I passed on a few interesting mobile social games startups because I thought that OMGPOP might very well build mobile games in the near future and I wanted to avoid any potential conflict.

Same is true in the Twitter ecosystem. There are many interesting startups in the Twitter ecosystem and I’d love to back a few in particular. And even though Twitter doesn’t compete or plan to compete with these startups, I didn’t want to have a situation where I’m conflicted on the board in the future. 

The tricky part with this approach is if you ask a founder what’s on his roadmap, sometimes you get a considered response but it’s typical to get back a “boil the ocean" response or sometimes you just get a pure emotional response that isn’t thought through.

It’s not surprising and why we love our entrepreneurs. They are passionate and have give up so much to make their dream a success.

In that case we tend let the idea sink in for a few days and then we pick it up again. If the idea of the new startup is completely radioactive to the existing founder (even if are pretty sure it’s not competitive) we don’t pursue the new company. Our relationship with our founders is sacred and we do our best to take care of that relationship. 

I’m quite sure that we will miss a few important investments and i’m sure we could be more aggressive with and flirt with the gray line that we are trying figure out every day. And i’m sure I annoy a number of possible potential founders with this approach.

But I just don’t care for the alternative.