Mark Cuban popped in for a talk at TechCrunch’s Disrupt San Francisco conference this past week. In addition to explaining why he’s so bullish on chat privacy apps like Cyber Dust, he also explains what it takes to gain his confidence as an investor.
The first idea he talks about is arbitrage – meaning there are tons of great startups and ideas coming from places like Dallas and he can get in at lower valuations than if they had originated in the Valley, LA or New York. He’d rather fund innovation outside of the Valley and then sell into the Valley when it’s time to exit or create liquidity.
The next thing he talks about is how he thrives on competition. “Fuck y’all, I want to win,” he tells the audience. Which they love to hear and can relate to. Of course we already know this about Cuban, and it’s easy to imagine his desire to want to work with like-minded founders / entrepreneurs.
Speaking of winning, which Mark Cuban does often, he’s looking for companies that have a plan besides just getting to the next round of funding. To Cuban, the social proof of “look, we just raised $10 million so we’re obviously on to something” is irrelevant. He wants to know what this company looks like in the future if additional funding isn’t forthcoming – what does this business actually do in cash flow?
These days, the big tech corporations with cash to burn seem to have completely disregarded the notion of cash flow because they’re all in empire-building mode. They’re buying market share, they’re buying patent portfolios and they’re buying free users who one day may be coaxed to spend a buck or two. That’s a big boy’s game for Google and Facebook, not for most investors. Cuban seems to be equally comfortable politicking with those types while understanding that he can’t afford to be investing like they do.
One other thing – Cuban hates it when a founder presents the case to invest in his company by reeling off stats about its total addressable market and then making the assumption that 1 percent is attainable – as in: “The market for dry cleaning here in the United States is $2 billion annually, if we can just capture one tenth of one percent…” Cuban makes the point that any jackass can pick a huge market and create the same extrapolative fantasy, but then what?
Without further preamble, here’s the 20-minute appearance in its entirety. You should watch it.