Adam Fisher: Why Small Markets are Better Than Big Markets | E1106

Investment Philosophy & Market Trends

• Adam Fisher (Partner, Bessemer Venture Partners) asserts that building a big company or achieving a major exit is rarely achieved by investing in the most ambitious, fastest-growing companies, as these are most prone to failure.
• Fisher prefers a "base hit" strategy (multiple steady wins) over high-risk capital concentration in a single "home run," noting that predicting winners early is often impossible and largely retrospective.
• He observes a shift in the VC industry from a closed, adversarial "paternal" model (1990s) to a more open, partnership-based approach, though he criticizes the current "speed dating" dynamic where founders and VCs decide on partnerships in under a week.
• Fisher warns against the "number two or three" trap, arguing that being the sole player in a niche market is a superior arbitrage opportunity compared to competing in a large, saturated market.
• He expresses caution regarding the current AI sector, describing the current funding environment as a "horse race" with excessive competition and high capital consumption, leading him to avoid mainstream AI use cases with low margins.

Founder Selection & Due Diligence

• Fisher distinguishes between two types of second-time entrepreneurs: those blinded by previous success/ambition (whom he avoids) and those who are rational and seek feedback (whom he backs).
• He explicitly favors first-time founders over second-timers, provided there is strong chemistry and a demonstrated ability to learn rapidly from mistakes.
• He values "outsider" perspectives over "insider" approaches, noting that naivety can drive innovation when combined with self-awareness, whereas insiders are often blinded by past conventions.
• "Efficiency" is a critical signal; Fisher looks for founders who took personal financial risk (e.g., using credit cards, delaying salary) and made early sales personally rather than hiring a sales team immediately.
• Fisher prioritizes the ability to raise follow-on capital; he invests in founders who are effective storytellers in one-on-one settings and can connect with investors, even if they miss short-term targets.
• He rejects "blank check" founders in seed stages unless the investor knows them for years, preferring rigorous diligence on early-stage deals where the investor is the sole or lead participant.

Deal Structure, Valuation & Risk Management

• Fisher is highly risk-averse regarding valuations; he believes companies raised at valuations close to potential exit prices (e.g., $50M ARR vs. $500M valuation) face "nightmare" scenarios where they cannot sell without severe dilution or failure.
• He advises against raising excessively large seed rounds (e.g., $20M), arguing that early-stage companies cannot effectively utilize such capital without creating cultural, hiring, and operational dysfunctions.
• Fisher advocates for "contrarian" investments where the company is the only player, but warns against going so contrarian that follow-on funding becomes impossible.
• He recommends selling exits when a company peaks, often advising founders to sell before the market turns or before competitors erode margins.
• Fisher emphasizes that "pattern recognition" is most valuable for identifying what won't work, allowing VCs to avoid bad deals rather than just spotting winners.

Portfolio Performance & Specific Cases

• Fisher cites Wix and Fiverr as key early exits where he was the first institutional investor; both received negative feedback from his partnership due to unproven business models and poor presentation at the time.
• He identifies Wix's investment as particularly difficult to justify retrospectively, noting the founders' unconventional marketing tactics (e.g., spending $50k on a three-letter URL) were the deciding factors.
• Fisher lists four write-offs totaling $40M-$60M, including a chip company with 90 patents that failed because his thesis on an IP-sales strategy was incorrect compared to a competitor's chip-development approach.
• He maintains that his risk aversion in follow-on rounds is a calculated choice to prevent "doubling down" on unsustainable growth, even if it means missing additional upside in winners like Wix or Fiverr.

Operational Advice & Board Dynamics

• Fisher views his role as a VC to "pull founders down when their heads are in the clouds" and "pick them up when they are on the ground," acting as a balance to founder euphoria or despair.
• In hiring, he prioritizes avoiding "bad hires" over finding the "perfect hire," focusing on cultural fit and the candidate's ability to handle the specific stage of the company.
• He advises that early-stage VCs should not try to manage operations but act as a "lighthouse," pointing out rocks (risks) rather than steering the ship.
• Fisher notes that misalignments between founders and late-stage investors often arise from the need for immediate liquidity (1x returns) versus the need for long-term growth.

Macro Outlook & Personal Views

• Fisher has shifted from short-term pessimism to short-term optimism regarding the Israeli business environment, citing bottoming out of the market, while expressing long-term pessimism regarding geopolitical instability and US isolationism.
• He is critical of the "judicial reform" in Israel, having publicly criticized the government's moves to gut the independent judiciary in 2022.
• He disputes the misconception that the Israeli startup ecosystem is dominated solely by cybersecurity or technical founders, noting significant success in non-technical and vertical SaaS sectors.
• Fisher believes the biggest sin of the "zero interest rate" era was the belief that a company could succeed as a #3 or #4 player in a market.

Investment Advice & Future Outlook

• Best advice received: Two contradictory pieces: 1) Exit immediately if the first 12-18 months show fundamental flaws (wrong assumptions, bad team); 2) 90% of value is created in the final 12-18 months of a company's life, requiring patience.
• Best advice given: Early-stage investors should "get points on the board" by securing early exits to build confidence and psychological resilience for larger deals.
• Future goals: Fisher aims to reduce his board load in 10 years to focus on writing, reading, and mentoring younger investors, viewing knowledge transfer as a critical societal role.