This month is the 100th anniversary of Einstein’s Theory of Relativity, one of the most remarkable theories in the history of science. Einstein’s methods of discovering new ideas is surprisingly similar to discovering early-stage consumer startups. I’m often asked how Maven knows which early-stage consumer companies to “bet on”.  Last week, in reviewing the success of our two previous funds, a potential new investor in Maven asked us how we’re able to “pick so many winners” when many investors struggle with early-stage consumer investing. Marc Andreessen offers his thoughts on that in this New Yorker story: Andreessen Horowitz and most other VCs bet early with enterprise but wait on consumer — they’d rather pay up for certainty.

One big reason is that we’re not in the lottery business. We don’t just pick or bet on winners.

Strong filters: We have a filtering process that helps us develop the right investment thesis and identify the right team. And, after our investment we work diligently with the founding team to guide that company on the best path to success.

Focus: That might make it sound easy, but it really is hard to do. We help our success rate by maintaining an industry-specific focus (consumer software) and building a strong reputation in the business.

Recognizing trends: We will see 2,500 companies each year for our 10 investments. We get to see many of the best consumer ideas before most people, and more importantly, we’re able to spot trends before most investors. It’s always interesting to me when I see 2 or 3 great founding teams attacking a similar problem for millions of people around the same time. That can mean there’s a massive unmet consumer need. When we recognize that, we start digging in to see if we can help build a company that will solve that problem and create a large, sustainable business along the way.

A little help from Einstein: This is all critical to our success in helping to identify and invest early in the “winners.” Yet, there’s one more key ingredient that I knew intuitively, but wasn’t able to articulate until I recently read an opinion piece by Walter Isaacson on the 100th Anniversary of Einstein’s general theory of relativity.

“Einstein did more than just notice what the blind beetle couldn’t see. He was able to imagine it by conjuring up thought experiments. That ability to visualize the unseen has always been the key to creative genius. As Einstein later put it, “imagination is more important than knowledge.”

Einstein came up with his ground-breaking theories because he was able to “imagine a new reality”. He was able to “visualize the unseen”. And that’s exactly what an early-stage consumer founder and investor need to do. He or she needs to be able to imagine what a world would look like if their new product vision succeeded. It’s what we call ‘The Vision Worth Fighting For.’

The next time someone asks me how we’re able to pick the winners, I’ll continue to explain our process and filters, and then I can share that we come up with thought experiments, like Einstein, to help us visualize the unseen and unmet consumer demands and look for talented founder teams that have the same vision. Then, we write the first check, roll up our sleeves, and get to work.

Thanks to my talented Maven teammates, Sara Thomas and Robert Ravanshenas, for reviewing and editing drafts of this post. Follow us on Twitter @mavenvc. 

Over the last couple of months at Maven, we have spent time reviewing our Fund I investment strategy and results as we prepare to begin investing our second fund soon. We invested Fund I over about 2.5 years and have a total of 22 portfolio companies in our inaugural fund. Any additional capital in that fund is reserved to continue supporting our existing investments. The performance of our Maven Fund I has exceeded our aggressive and hopeful expectations. We’ve had one acquisition to-date and our remaining 21 portfolio companies are all still alive and well. Over 50% have raised a second round of funding — in some cases at 10x the valuation of our initial investment — and the companies have collectively raised over $150M since we first invested. We are grateful for all our startup founders who work so hard every day to achieve the impossible.

Portfolio construction — the exact number and size of our investments — is a key topic for us (and any venture fund). Looking forward, we feel that 8 – 10 investments per year is the right-sized portfolio for our Fund II with a larger initial investment amount.  Our team is very hands-on in nearly every investment we make, and even more so at the earliest stages. This pace allows for us to remain very active while still offering enough diversification across a high risk/ high reward early-stage investment portfolio.

Our philosophy on portfolio construction highlights another trend in the industry — the rise of the Institutional Seed Investor. While the “Micro VC” term largely dominates the discussion, I see a lot of variation across funds. The definition is also increasingly broad, including any fund sub-$100M. Many Micro VCs follow a volume-based strategy, writing small checks to dozens of companies, more focused on sourcing and accessing many deals rather than choosing a smaller number of companies and rolling up their sleeves to help. This strategy may work out well for a small number of lucky Micro VC investors. We prefer a more targeted approach, writing more meaningful checks (in terms of dollar size and percentage of the fund’s capital), and working very closely with the founders through their Series A. We’re often an extension of the team through the first six months post-seed investment– a critical and precarious time in a startup’s life. During that time, many great habits can be developed that will serve the founding team and company well for years to come. Conversely, many bad habits can be formed that could kill the startup. This is what we mean by an Institutional Seed approach. Institutional Seed Investors don’t just offer cash, but also meaningful time hands-on and a depth of experience that is critical to building successful companies. It’s the modern iteration of what “Series A” players used to do.

Over the past eight years as a professional investor, I’ve learned many lessons in raising and investing consumer startup capital. The hands-on, concentrated strategy has worked well for us, and we are doubling down on this strategy for our next fund, investing in slightly fewer startups with larger investments. This strategy has helped us outperform the market over the past 8 years and we’re convinced we’ll continue to do that with Fund II as we invest in and help build important and valuable consumer businesses.

Thanks to my talented Maven teammates, Sara Thomas and Robert Ravanshenas, for reviewing and editing drafts of this post. Follow us on Twitter @mavenvc.