Jan 22, 2024 · 1h 17m · news
Adam Fisher: Why Small Markets are Better Than Big Markets | E1106 · 20VC with Harry Stebbings
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In this deep-dive interview, Bessemer Venture Partners' Adam Fisher shares his highly contrarian, disciplined approach to early-stage investing, emphasizing the value of niche markets, capital efficiency, and the critical psychological alignment between founders and venture capitalists. He cautions against the traps of over-capitalization, rushed deal-making, and hype cycles like generative AI, advocating instead for patient, relationship-driven growth.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Harry holds 25% of the talking time here. How this is scored →
Harry as informed peer 3.2 Guest teaching 4.0 Guest disagreement 2.2 Harry pushing back 2.2
speaking balance: gold is Harry, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 56:29 Adam pushes back against changing his reserve strategy
Adam forcefully rejects Harry's proposal that Bessemer remove reserve decisions from his hands, stating that changing his proven strategy could be the worst decision of his career.
Hardest push from Harry ▶ 55:18 Harry challenges Adam's risk aversion and reserve managementHarry aggressively probes Adam's admitted risk aversion, asking if it makes him a worse investor and suggesting an independent partner make reserve allocations for him.
Biggest teaching moment ▶ 34:03 Adam redefines pattern recognition and the board member roleAdam reframes how investors should think about pattern recognition, explaining it serves to avoid bad paths rather than pick winners, and uses his lighthouse metaphor to clarify a board member's true function.
Harry holds his own ▶ 46:26 Harry counters Parker Conrad on large seed roundsHarry demonstrates strong market expertise by citing Parker Conrad's argument on seed capital and offering a structured counter-argument on the operational hazards of bloated early rounds.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Harry as informed peer | Guest teaching | Guest disagreement | Harry pushing back | Why |
|---|---|---|---|---|---|---|
| How Adam Fisher Entered Venture Capital | 1 | 2 | 1 | 0 | Harry introduces the episode and asks an open narrative question about Adam's start in venture capital. Adam shares his serendipitous entry into Israeli VC as an intern in 1996 without friction or pushback. | |
| The Evolution of the Venture Capital Industry | 5 | 4 | 2 | 3 | Harry demonstrates expertise by referencing Doug Leone's contrast between boutique and commoditized venture capital. Adam reframes the evolution to explain why he prefers today's open, non-paternalistic environment over the high-speed 'speed dating' dynamic. | |
| The "Blank Check" and Second-Time Founders Dilemma | 4 | 5 | 5 | 5 | Harry posits his concept of 'blank check founders' where he invests blindly in proven entrepreneurs. Adam directly rejects this framing, warning that second-time founders are often blinded by past success and seek size over strategy. | |
| The Value of Naivety and the Outsider Perspective | 3 | 5 | 4 | 2 | Adam explains why he favors outsider naivete over industry insiders. When Harry asks about category creation vs existing markets, Adam dismisses the category creation label as retroactively applied hype. | |
| Investing in Non-Competitive "N of One" Markets | 4 | 3 | 1 | 1 | Harry references Mike Maples and advocates investing in 'N of 1' non-competitive markets. Adam strongly agrees and illustrates the dynamic with his historic investment in Dune Networks. | |
| Managing Follow-on Funding Risk in Contrarian Bets | 2 | 3 | 1 | 1 | Harry asks how Adam manages follow-on funding risks when taking contrarian bets. Adam explains his rule of choosing founders who are compelling storytellers capable of raising follow-on capital even off-plan. | |
| Storytelling vs. Execution in Fundraising | 4 | 4 | 3 | 4 | Harry pushes back on Adam's emphasis on storytelling, asking if slick fundraisers lack operational depth. Adam clarifies his definition of storytelling as one-on-one customer persuasion and outlines early signs of capital efficiency. | |
| The Strategy and Economics of Niche Market Investing | 3 | 4 | 2 | 2 | Harry outlines his preference for lower entry valuations in modest markets over high entry prices in multi-billion dollar markets. Adam elaborates on how early-stage entry pricing preserves downside protection in niche markets. | |
| Case Studies of Non-Consensus Bets: Wix and Fiverr | 2 | 4 | 1 | 1 | Adam shares behind-the-scenes case studies of early non-consensus investments in Wix and Fiverr, detailing how his partnership initially gave negative feedback on the Wix deal. | |
| Learning from Investment Failures: The IP Chip Company | 1 | 5 | 1 | 1 | Harry asks about investment write-offs. Adam transparently breaks down a major failure in an IP memory chip company where his underlying thesis on customer buying behavior proved completely wrong. | |
| Pattern Recognition and the "Lighthouse" Analogy | 4 | 6 | 2 | 2 | Adam educates Harry on pattern recognition, noting its primary utility is identifying what won't work rather than predicting success. He introduces the 'lighthouse' analogy for venture partners and discusses executive vetting. | |
| Why Founders Choose Adam Fisher as a Partner | 4 | 3 | 1 | 1 | Harry quotes Keith Raboi regarding why top founders pick specific VCs. Adam explains that founders choose him for his personal reputation and emotional composure during company highs and lows. | |
| Valuation Mismatches and Raising Too Much Money | 4 | 5 | 4 | 4 | Harry cites Peter Fenton on price sensitivity, and pushes back on Adam by arguing down rounds destroy company morale. Adam retorts that public company CEOs handle price swings daily and founders should treat employees like adults. | |
| The Danger of Raising Too Much Capital at Seed Stage | 6 | 3 | 2 | 3 | Harry brings up Parker Conrad's view that warnings against raising too much capital are 'VC-isms', arguing instead that bloated seed rounds create operational risks. Adam strongly agrees with Harry and slams $20M AI seed rounds. | |
| Investor Strategy: Aiming for Base Hits and Patient Growth | 2 | 4 | 1 | 1 | Adam details his preference for 'base hits' and patient growth over explosive hype. He illustrates this approach through Wix's unconventional early guerrilla marketing tactics. | |
| Capital Concentration, Reserves, and Risk Aversion | 6 | 4 | 2 | 4 | Harry cites Brian Singerman on capital concentration in winners. Adam counters that predicting winners early is a retrospective delusion, questioning whether reserve strategies actually work as intended. | |
| The Psychological Impact of Risk Aversion and Reserves | 5 | 5 | 6 | 7 | Harry directly challenges Adam's admitted risk aversion, asking if it hurts his returns and proposing that Bessemer appoint an independent partner to make reserve decisions for him. Adam firmly defends his autonomy and investing style. | |
| Founder-Investor Misalignments and the Late-Stage 1X Reality | 3 | 5 | 3 | 4 | Harry asks about founder-investor misalignments. Adam explains late-stage investor pressure for 1X distributions. Harry questions if it's fair for investors to demand 1X returns, and Adam explains board-level navigation. | |
| Navigating M&A and Preempting Low Offers in Down Markets | 3 | 5 | 2 | 2 | Harry asks how liquidity can occur when M&A is frozen post-Figma. Adam explains the psychological hurdle of accepting low acquisition offers on the way down before market conditions deteriorate further. | |
| Predicting Company Peaks and Orchestrating Exits with Charismatic Founders | 3 | 6 | 2 | 1 | Harry references Daniel from Choco's compliment that 'Adam has good exits'. Adam breaks down how he predicts company peaks and engineers sales by positioning charismatic founders directly to acquirers. | |
| Timing Windows and Acquirer Economics in Technology Buyouts | 2 | 3 | 2 | 1 | Adam details acquirer economics and EPS impact during tech buyouts. Harry then transitions to Adam's public political commentary opposing Israeli judicial reforms and anti-Semitism. | |
| Quickfire Round: Shifting Optimism, Geopolitics, and US Isolationism | 2 | 2 | 2 | 1 | In a quickfire round, Adam reveals he has inverted his typical outlook to short-term optimistic and long-term pessimistic. He voices concern over rising US isolationism and a potential Trump presidency. | |
| Quickfire Round: Misconceptions of the Israeli Startup Ecosystem | 2 | 3 | 2 | 1 | Adam dispels misconceptions about Israel's tech scene and shares investment advice regarding cutting bad deals early while recognizing that 90% of value is created in a company's final 18 months. | |
| Quickfire Round: The ZIRP Era's Biggest Sin and Market Wave-Riding | 2 | 2 | 1 | 1 | Adam identifies the biggest sin of the ZIRP era as backing 3rd or 4th place copycats in hot markets. He closes with reflections on mentorship and generational knowledge transfer. |
Statements from this episode (55)
Fisher: Fastest-growing and most ambitious startups often crash and burn
“I don't think that the way you build a big company or the way you get a big exit is by investing in the most ambitious companies, growing the fastest. Those are also the companies that crash into it.”
Fisher: Early venture capital was adversarial and paternalistic toward founders
“I worked back then at a time where it was much more adversarial relationship with entrepreneurs. The VCs kind of acted as if they knew what they were doing, that they knew the right way. A lot of these VCs were former Maybe entrepreneurs themselves, or at leas…”
Fisher: Founders need a confidant partner, not a prescriptive investor
“One of the things that I eventually, ah, did myself when I started at Bessemer, ah, this is in 2000 and seven, was to, Take a very different approach to take this kind of partnership type of approach with the entrepreneur, because I realize what they really ne…”
Fisher: Lead VC partners stay on startup boards longer than co-founders
“There's a higher likelihood that that partner from that VC will be on your board than your co-founder will, just statistically.”
Fisher: Worst venture investments are made under competitive time pressure
“My worst decisions have been the ones that I made in the least amount of time, due to pressure.”
Stebbings: Ideal seed strategy is funding known founders regardless of idea
“I always think, bluntly, for pre-seed or seed, the best thing is when you know the founder so well that you actually don't care what they're doing.”
Fisher: Raising more capital at higher valuations does not build bigger companies
“Being more ambitious, raising more money, a higher valuation. But that's actually not the way in which you build something bigger.”
Fisher: Absolute certainty about an early-stage idea is a bad signal
“But if they're so certain about the idea at such an early stage, to me, that's a bad signal.”
Fisher: Avoid second-time founders who attribute past success solely to ambition
“Like I said before, there are two types of second time entrepreneurs. There are those that don't recognize the luck that was involved. They think that building something big is just more ambition. And I steer clear of those.”
Fisher: Rapid learning speed between meetings is key for first-time founders
“The key for looking at first-time entrepreneurs is, is, is identifying somebody that you have chemistry with that you have back and forth from, that they can learn from you, you're learning from then. It's also people who progress very fast on the learning cur…”
Fisher: Founder naivety beats industry insider experience due to lack of bias
“Insiders are just blinded by convention, by knowing a little bit too much of what hasn't worked in the past of where others failed. Naivete is a strength in these cases, and if you have the right entrepreneur who, again, is self-aware and perhaps also has a ce…”
Fisher: Claiming category creation from day one is a mistake
“I think if you're, from the get-go, if you're talking about creating a category, you're making a mistake. I think a lot of times when we talk about category creation, it's in retrospect that we see that a category was created. It wasn't started that way.”
Fisher: Category creation only works when serving a new buyer type
“I think where category creation makes sense is when they've identified a new type of customer or a new type of buyer.”
Fisher: Niche market first movers offer better arbitrage than big market competitors
“That that it's a better arbitrage opportunity to be the lone player or the first mover in a even in a smaller market, even in a niche market, than to be the number two or three in a large market. Because a number two, it's like a gladiator competition. Number …”
Fisher: Avoid contrarian investments that lack follow-on venture capital interest
“As much as I am willing to be contrarian, I'm not willing to invest in something that others are not going to fund. So I need to find, it's a fine line, but I need to find something That perhaps is not mainstream, perhaps is not and yet a headline in TechCrunc…”
Fisher: Back founders who can raise capital even when missing operating plans
“I invest in people who I think can raise money even when they're not, even when they don't meet their plan.”
Fisher: Raising $50M for an early-stage startup is inappropriate
“I mean, any early stage company that's raising fifty million dollars, I don't know what stage that was that you were thinking about, it's inappropriate. Those are not the type of invest, of entrepreneurs that I back.”
Fisher: Growth at all costs is unsustainable for early-stage startups
“It's rarely growth at all costs in my book that just doesn't last, and it's very painful when it's, when it stops.”
Fisher: Evaluating financial KPIs at $500K ARR is meaningless
“Trying to focus on KPIs when a company has half a million dollars of ARR also doesn't make much sense. Those numbers are, if it's, if they're fantastic numbers, I say it's anecdotal. And if they're horrible numbers, I say, well, we need a bit more scale to get…”
Stebbings: All great entrepreneurs show entrepreneurial drive in early childhood
“The greatest entrepreneurs I find of all time when I look at pattern recognition on the people we've had on the show is all the best entrepreneurs made money or showed entrepreneurial signs in some way in their childhood. I made websites. I sold lemonade. I so…”
Stebbings: High return multiples at lower valuations trump massive outcome sizes
“Multiple invested capital is what I care about, not necessarily size of outcome. If I get in it, 200 or whatever it is, and we sell for five billion. I'd rather get in at six and sell for 700, actually.”
Fisher: I was the first institutional investor in Wix and Fiverr
“The easy ones are Wix and Fiverr for me, because at the time, You know, I was the first institutional investor to come in both of those.”
Fisher: Bessemer partnership gave outright negative feedback on my Wix deal
“In both cases, I received what would be politely say very lukewarm feedback from the partnership. In fact, in the case of Wix, it was outright negative feedback.”
Fisher: Investing exclusively in my ideal founder typecast does not scale
“I accept that sometimes I have a lot of biases towards certain types of entrepreneurs, and I can't always invest in the same Adam Fisher typecast entrepreneur that even though that works for me, it doesn't scale and I'll probably miss out on some very good one…”
Fisher: Pattern recognition's real value is identifying what will fail
“The best thing about pattern recognition over time is that you recognize what won't work. It's not what will work. Now, if you recognize what won't work, it will help you avoid spending time on, on bad deals, or bad entrepreneurs, or if you're on the board of …”
Fisher: VCs act as lighthouses, not captains steering companies
“The analogy that I use is that we're not like you know, the entrepreneur is the captain of the ship, but we're not next door, you know, shouting which way to go. We're like the lighthouse. We just tell them where the rocks are so they don't crash, but we actua…”
Fisher: Avoiding bad executive hires matters more than finding the optimal candidate
“So I'm much more interested in not making a mistake with a hire than making sure that this is the Best possible candidate we could hire.”
Fisher: Executive mis-hires stem more from stage mismatch than personality clashes
“The latter because hopefully I've done my work and I've figured out the personal chemistry and the founders pretty good at that themselves, which I, again, I look for when I fund people. But sometimes it's a mismatch in the stage.”
Fisher: Hiring experience is one of the most underrated founder skills
“Experience in hiring is, is definitely underrated. You're absolutely right. It's one of the greatest skills of second time entrepreneurs is that they actually don't even need me to interview any of the candidates.”
Fisher: Founder relationship outweighs market and product when investing
“I make it very clear to the entrepreneur that I'm choosing them more than I'm choosing the market or the particular product, and that I'm choosing them because I'm also not just choosing somebody that I hope will succeed or want to succeed, but somebody that I…”
Fisher: Maintaining composure drives founder transparency and lasting VC partnerships
“And when you express that kind of balance, when you react to entrepreneurs, whether it's good news or bad news, with some kind of composure, they become more transparent with you, more forthcoming. They'll share the good information and the bad information as …”
Fisher: I rarely reject early-stage startup deals based on price alone
“Rarely have I turned down deals in the very early stages due to price alone.”
Fisher: Never raise funding at valuations equal to your target sale price
“I try and make sure my companies I back never raise at valuations that they want to sell the company at, and I warn them of that.”
Fisher: Inflated exit-level valuations are far worse than down rounds
“Down rounds are not problematic. Much more problematic, again, are valuations that that are essentially in exit territory, or far in excess of exit territory. It's really hard to recover from that.”
Fisher: Transparent leadership helps startup CEOs navigate down rounds
“I think being honest as an, as a CEO and speaking to your employees like adults and not children is the way to get past it.”
Fisher: Raising too much seed capital distorts startup culture and execution
“No, at seed I don't think so. I think it distorts everything. Everything from the go-to-market model to how you hire, to the offices and the culture you're creating, it's all wrong. I, so I completely disagree.”
Fisher: I refuse $20M AI seed rounds driven by competitor fundraising
“No, I don't. I don't do them, but for different reasons. I don't do them because the way they rationalize needing twenty million dollars is because their six competitors also raised twenty million dollars, and in that sense, they're absolutely right.”
Fisher: Avoid high-capital, low-margin mainstream AI use cases
“Well, I know it's hard to sit out in an entire market, and it feels like AI is like the equivalent of cloud, and so I'm not suggesting sitting out of anything related to AI. Of course not. I'm talking about some of the very mainstream type AI use cases, especi…”
Fisher: Wix was public for years before becoming widely known
“Wix, by the time it was known, it was already public for two, three years.”
Fisher: VCs cannot accurately predict which portfolio companies will win
“There's no question that, at the end of the day, you, most of your returns are gonna come from very few deals. It's not gonna be spread evenly. That's a fact. The question is, can you recognize it early on, or can you recognize it really at any point? And I do…”
Fisher: I refuse to double down on companies with unsustainable burn rates
“I don't mind having missed an opportunity to invest three more million dollars in a company that could have generated another thirty million dollars of gains, but I do worry a lot about doubling down in a company, investing another twenty million dollars, and …”
Fisher: High cost basis forces VCs into risk-averse board mindsets
“When you invest a lot more money at a lot higher valuations you actually end up behaving a little bit different as a board member even when all of a sudden you have a hundred million of cost basis in a company, in which I do have several companies where that's…”
Fisher: Late-stage VCs will prioritize getting 1x returns by 2026
“100%. That is exactly what's going to happen over the next 24 months. Various ways in which to get, you get your one X. And when you know that you want your one X, you want it now. You don't want to wait two, three, four years from that.”
Fisher: Founders in down markets must take low M&A offers early
“You always want the previous deal. This is the stage where you always want the previous deal. You want what they off, what you could have had before, and you have to preempt that, meaning you have to realize that it only gets worse from here, and so you actual…”
Fisher: The startup acquisition process typically takes a year or longer
“And this is not a decision that within three months then you have offers. It's typically a year long, if not more, process.”
Fisher: I have achieved surprisingly high exits on sub-$2M revenue startups
“And so I would say at least six or seven times I've had exits where, I mean, the company Was almost worthless. You know, less than two million dollars of revenue, and we had offers that shockingly good.”
Fisher: Tech acquirers evaluate startup burn relative to EPS impact
“Acquirers don't want to buy ongoing losses, so you have to have a manageable burn, and of course, that the various ways of looking at that, but it's typically as a percentage of the acquirers EPS how much they can absorb, how many kind of losses they can absor…”
Fisher: The Israeli tech business environment has bottomed out and is improving
“In the context of Israel and business, I think business has bottomed out and things are getting better for now.”
Fisher: Oversupply of venture capital limits industry-wide success
“I do worry, for instance, in venture capital that there's still far too much capital to make this a business that we can all do, or even a lot of us can do well in.”
Fisher: Israeli startup ecosystem is not just cybersecurity and technical founders
“Oh, it's probably that they're all techies and they're all in cyber security, which is just not the case. I've backed a lot of entrepreneurs that have no technical background or minimal technical background. And obviously I have very few, if not any cyber secu…”
Fisher: 90% of startup value is created in its final 18 months
“Oftentimes, 90% of the value that Is created in the company happens in the last 12 or 18 months of the company's life”
Fisher: New VCs should prioritize initial exits over backing giant companies
“When they're starting out, I tell them, just get points on the board which is to say again, don't try and back the biggest thing. That's just not the way it works. Just get some exits.”
Fisher: Experiencing major investment losses severely impairs future VC decisions
“To have thirty million dollars going, feel like they're going down the drain, It really affects every subsequent decision you're going to make on that company and any other investment.”
Fisher: Being the third or lower player in a market leads to failure
“I think it's more about thinking that you could be number three or four or five in a market and still succeed. I think that's such a mistake on the part of entrepreneurs, investors, and even employees who join these companies. Obviously there are exceptions, a…”
Fisher: Investing lessons learned over 30 years come too late for oneself
“What are the things you learn over this kind of a period, 25, 30 years, you learn them too late to make them truly valuable to yourself, and so the best thing you can do is then try and give it to younger people and hope that they'll, they'll, they'll, they'll…”