In 2010, just after cofounding a new venture firm, Founder Collective, Eric Paley made one of the best venture-capital investments of all time.
Paley's $95,000 investment in a little-known startup called UberCab was eventually worth more than $372 million when the ride-sharing giant Uber went public in 2019, The Wall Street Journal reported. (Paley would only say that he made a "four figure" multiple.)
That investment in Founder Collective's first year of operation is tough to top, but Paley, in Cambridge, Massachusetts, landed at No. 2 on Insider's 2022 Seed 100 list thanks to a string of successful exits, including Blissfully (acquired by Vendr for $100 million), Codecademy (acquired by Skillsoft for $525 million), and Finxera (acquired by Priority Payment Systems for an undisclosed amount).
In an era when many investors specialize, Paley is unabashedly sector agnostic. He recently backed Flume Health, a healthtech startup, and Vyne, a payments company.
"I think a lot of the reason VCs focus on sectors is that it makes them feel smarter," Paley said. "You present yourself as a thought leader who understands where things are going, and then you start to look for companies that pattern match to your thesis."
But Paley always believes founders know best, and he looks for ones that are, in his words, "all over it."
"There are founders who love to wave their hands and tell a big story, but when you really go into the weeds with them or ask them the hard questions, get defensive or annoyed, or they can be a bit glib," Paley said. "The founders we love are the ones who acknowledge what they haven't figured out yet but can't wait to tell you about how they're thinking about solving it."
In the case of Uber, Paley was introduced to Ryan Graves, the CEO of UberCab, which let riders hail luxury black cars via a smartphone app. Other investors Paley queried about the nascent ride-hailing startup were skeptical. They asked why UberCab couldn't be put out of business by any taxi company that made its own app.
"They were really looking at it from a tech perspective and not a user-experience perspective," Paley said. But he posed a question, one he's asked for every investment since: "If this works, what does it look like?"
He also tried to look past the concerns that people would not want to ride in a stranger's car. "We've always loved things that were weird and wonderful and always believed that when things that are weird and wonderful succeed, they start to seem like obvious and mainstream," Paley said.
Once the investors at Founder Collective find a founder and startup they like, they structure a deal in a way that aligns incentives, so the firm's investment is diluted alongside the founders' in later rounds.
For the past 12 years, Founder Collective has tried to stay lean, and it encourages its companies to do the same.
"We believe entrepreneurs should try to raise as little money as possible to accelerate their businesses, while preserving ownership," the fund said on its website. It also mentioned the success of The Trade Desk, which raised $22.5 million in venture before going public for over a billion dollars.
"We basically sit on the exact same side of the table as the founder and become their best ally," Paley said. "You can only do that if you stay really small as a fund and as a partnership, and you stay really true to your values."
