An early investor in Oculus and self-driving cars spots the future in his gut

Nabeel Hyatt doesn't look around the corner trying to predict the future. He can only feel it in his gut when he experiences it.

Trying on the Oculus Rift for the first time felt as transformative as the iPhone. Cruise's self-driving car technology made him confront what a future of riding in driverless cars would feel like. When it came to Postmates, he could have Tylenol delivered to his house to quell his son's raging fever. It was magic, he told Business Insider.

The Spark Capital partner is known for making big bets on the future that pay out even bigger. In 2014, Oculus sold to Facebook for $2 billion. This spring, Cruise Automation sold to General Motors for a reported $1 billion price tag. Now investors are scrambling to catch up to the self-driving car movement.

We listen to our heart when we invest.

Hyatt sat down with Business Insider to talk about how he learned to trust his gut - and what he thinks will be the fundamental technology to disrupt it next.

The following Q&A has been edited for length and clarity.

Biz Carson: You've had a few hits with predicting what comes next. Oculus was an early win in virtual reality. Cruise, the self-driving car startup, was an early exit and now other investors are trying to catch up. So what's coming next?

Nabeel Hyatt: Well the glib answer is to go look at the portfolio.

I think one of the reasons this firm has a pretty good track record of finding new markets that others haven't tuned into is that we're not market-first VCs. You can have this conversation with most VCs and they'll tell you the three or four markets they're investing in right now and 90% plus of venture capital is run that way. It's market-first investment. And we just don't believe that which is different than most firms.

We believe that really amazing products can create markets that you can never analyze, that you couldn't get some analyst to draw an excel spreadsheet. When Santo [Politi, Spark Capital partner] was telling us about Oculus, he wasn't saying "This is a massive market." He just said "You have to experience this product".

When Brendan [Iribe], the CEO of Oculus was in Boston and showing it to our whole team, you could've written the narrative that VR was going to be some massive new paradigm of computing and huge, but you could also say it's some weird expensive peripheral for gamers that 1% of people who like to play hardcore first person shooters are going to get.

Instead, we looked at that experience and said this is the most transformative hardware experience we've had since the iPhone, how do you not invest? Of course you invest.

BC: What about something like Cruise where it's self-driving cars? To me, the goal posts are very long down the road of that coming to fruition, but you're a venture capitalist and you're looking for 10 year returns. How do you know that it's a good bet for venture capital? That it's not some Jetsons, one-day-we'll-have-flying-cars idea, but a business that can actually do it?

We have a hard time investing in a founder with three sentences about their company and a good idea, but you can't experience it yet.

NH: There's a technical due diligence side. When you sit down with Kyle [Vogt, Cruise CEO] and he paints his vision for the future, from the product side, you want this future to exist. You want to experience it because it will be transformative.

And then you have the question of well, is it going to work? We do spend a lot of time and energy when we're doing these frontier tech investments, which we're very comfortable with, to just dig in and make sure it's possible. That doesn't mean it's always there and it hasn't been for most of these. You can go to Lily and drones, or Thalmic with their first product, or cruise and driving. Like, the first time you put on a Rift it makes you sick after the six minutes. It definitely wasn't there.

We have to do due diligence but I'd rather place a risk on a really amazing team just getting the last 10% of that product working to make it transformative, then "Hey this team has a really great resume and they came out of a really great company and the demo was just OK, but I think they can make something great over time". Honestly a lot of seed and series A deals feel like that to me when I look at other firms. It's some guy, usually a guy, who sold a company before, made some money, he's going after a similar sector and it's like "well yeah, I don't know if the idea is amazing but he'll find his way through."

BC: You mentioned with the Oculus that you put it on and you're like "This is transformative as the iPhone." Do you have to have that reaction on all these things?

NH: We do. We listen to our heart when we invest.

That creates weaknesses, by the way.

We have a hard time investing in a founder with three sentences about their company and a good idea, but you can't experience it yet. If we can't experience what has come out of the hands of the founder, how that idea has manifested itself in a product, then we have a hard time getting behind it.

But what we don't need, which a lot of other VCs need, is some traction graph, going aggressively up and to the right before we believe. We don't need that, although it's obviously good. So we need to have an experience and put ourselves in the mind of the customers before we can really get conviction.

BC: What's something that you've passed on where you've had one of these experiences?

NH: I don't know. If it speaks to all of us, then we aggressively invest.

BC: Is there something that spoke to just you that didn't speak to the team?

NH: Cruise was controversial. We had a conversation about that.

BC: What made it controversial?

NH: The controversial part at the point where we invested was what would it feel like to be in the car and what it would feel like to be self driving. It was what that experience was going to be like.

It would surprise you that when I talk to other VCs, they expected the Oculus decision to be really controversial. That's what they expected, but that was completely unanimous. Brendan walked out of the room and 30 seconds later the entire partnership was "Go chase him down the elevator! We should be working with him!" which I don't think that was a reaction of any other VC.

There's always companies that came through here and we end up passing and they end up being really successful, and it's like 'oh I would have made a lot of money if we had invested." But if I backtrack to our reasoning at the time, that was a company for a different VC and it wasn't for us. And I'm comfortable with that. We don't have to do every single deal that's successful. We want to work with a certain type of founder, with a certain type of creative vision. And it turns out there's a lot of those for us to do OK.

BC: We've talked a lot about the hardware side, but you also invested in Postmates. Is that still an experience that you can trust your gut on?

NH: Postmates is totally an experience. It's totally magic. My first experience was sitting at The Creamery, like you do, and I had an entrepreneur friend of mine as we were just talking about things be like "Have you heard about this juice shop in Cow Hollow?'" He's talking about this juice and how it's amazing and it's awesome and it's incredible. He's telling me it's in Cow Hollow at the corner of blah and blah, and I'm like great, in one to two years when I get to Cow Hollow I'm never going to remember this happened.

He's like "You've got to try this juice, and I know the solution." He opened Postmates, had someone go get him the juice as we're sitting at The Creamery, and bring it down. We're sitting there and some guy walks up 15 minutes later and hands me the juice. And I'm like how did this just happen? I feel like I just teleported juice from across the city.

And yes, that's a luxury, but the next time I used it was when my wife was out of town two weeks later and my 10-year-old son was breaking a 101-degree fever and we had no Tylenol in the house and I couldn't leave because of him and my seven year old. And that was amazing. So after that I reached out to Bastian [Lehman, Postmates CEO] and was like this is a tool you use.

BC: But there are plenty of on-demand companies out there that will bring you anything from a massage table to you or food. How do you trust that gut instinct to know that this experience, this one company, is the right bet, not just that I like the idea of this?

NH: I guess it's not that hard? I don't mean to be glib about it, but if you're at the point of asking that question, you're already ahead of the game. Because most people ask the inverse questions. One, do we already believe in the market? And then two, show me if the business compiles if you're Postmates or that it's technically possible if it's Oculus, reduce all of my risk there. And three, I'll take product risk. That's the stack order generally. I'm much more comfortable with the complete inverse of that.

BC: Is there a product that you wish you had? Is there a technology that you wish would be coming soon? I know you don't think about markets first.

NH: We don't try to think about markets at all, so it's how do you look around the corner instead of just reacting to every founder that comes in?

The way I operate is that I look at underlying seismic technology shifts that might lead to new products that we haven't seen before.

You would've imagined Yelp when the iPhone coming out as getting a boost. You would've never imagined Uber.

The one that is really fundamental right now is advances in computer vision. That's probably one of the most material, seismic technology changes of the last five years that I think we still have another decade of realizing in different products and different markets.

We had 20 years of computer vision being relatively static and not making a whole lot of progress. And then about 3-4 years ago, we're using deep neural nets, and we're suddenly seeing this rapid advancement. It's not just inside of Google. It's not just inside of Facebook. It is across the academic field. It is happening at a bunch of startups. In fact, Cruise was a massive benefactor of that. It was less about understanding the self-driving car market and looking for a self-driving car company. That's not how we view that. We looked at the underlying advances in computer vision and we knew that it would be possible.

BC: Is there an area where you think it's going to be applied to next then?

NH: I think about this every day! I don't have one! I have 20! I actually think we're just in the first phase of applications. If I was to write up three to four sectors on a whiteboard, I would probably get them wrong. In the same way that when the iPhone came out, it enabled Uber to exist, but you would've imagined Yelp when the iPhone coming out as getting a boost. You would've never imagined Uber.

We're in that phase right now where the applications of it are relatively obvious. And what I am spending a lot of time in, but don't have answers in until we start investing is What is the second phase of the nonobvious, indirect benefit from technology?