Over the weekend, I was brewing up some mad lemonade. ‘Cause well, that’s the summer thing to do. Since I’m limited in my expeditions outdoors, it’s just watching the sun skim over the horizon, blossoming its rose petals across the evening sky, in my backyard, sipping on homemade lemonade. If you’re curious about my recipe, I’ll include it at the bottom of this post.
Thomas Keller. An individual probably best known, among many others, for his achievements with The French Laundry. Needless to say, I was enamored by his talk. But the fireworks in my head didn’t start going off until the 12:46 mark.
As a result of my commitment to provide feedback for every founder who wants a second (or third) pair of eyes on their pitch deck, I’ve been jumping on 30-minute to 1-hour calls with folks. Although I’ve had this internal commitment ever since I started in venture, I didn’t vocalize it until earlier this year. And you know, realistically, this is not gonna scale well… at all. But hey, I’ll worry about that bridge when I cross it.
Something I noticed fairly recently, which admittedly may partly be confirmation bias ever since I became cognizant of it, is that there have been a significant number of founders currently fundraising who complain to me about:
Many VCs don’t have their investment thesis online/public.
Of those that are, VCs have “too broad” of a thesis.
So, it got me thinking and asking some colleagues. And I will be the first to admit this is all anecdotal, limited by the scope of my network. But it makes sense. That said, if you think I missed, overlooked, over- or underestimated anything, let me know.
The Exclusionary Biases
By virtue of specificity, you are, by definition, excluding some population out there. For example, in focusing only on potential investments in the Bay, you are excluding everyone else outside or can’t reach the Bay in one way or another. Here’s another. Let’s say you look for founders that are graduates from X, Y, or Z university. You are, in effect, excluding graduates from other schools, but also, those who haven’t graduated or did not have the opportunity to graduate at all.
The seed market example
Here’s one last one. This is more of an implicit specificity around the market. The (pre-) seed market is designed for largely two populations of founders:
Serial entrepreneurs, who’ve had at least one exit;
And, single-digit (or low double) employees of wildly successful ventures.
Why? You, as a founder, are at a stage where you have yet to prove product-market fit. Sometimes, not even traction to back it up. And when you’re unable to play the numbers game (like during the stages at the A and up), VCs are betting on the you and your team. So, to start off, we (and I say that because I’ve been guilty of overemphasizing this before) look into your background.
What did your professional career look like before this?
Do you have the entrepreneurial bone in your body?
Here’s some context of what the idea maze might look like in another post I wrote.
The delta between a good investor and a great investor
Let’s say an investor were to be approached by two founders with the exact same product, almost identical team, same amount of traction, same years of experience, and let’s, for argument’s sake, have spent the same number of years contemplating the problem, but the only difference is where they came from. One is a first-time founder from [insert corporate America]. The other is the 5th employee of X amazing startup. Many VCs I’ve talked with would and have defaulted on the latter. And the answer is reinforced if the latter is a founder with an exit.
The question wasn’t made to be fair. And, it’s not fair. To the VCs’ credit, their job is to de-risk each of their investments. Or else, it’d be gambling. One way to do so is to check the founder’s professional track record. But the delta here that differentiates the good from the great investor is that great investors pause after given this information and right before they make a conclusion. That pause that gives them time to ask and weigh in on:
What is this founder(s)’ narrative beyond the LinkedIn resume?
Shifting the scope
It’s not about the quantitative, but about the qualitative. It’s not about the batting average, but about the number and distance of the home runs. So instead of the earlier question:
How long have you spent in the idea maze?
And instead…
What have you learned in your time in the idea maze?
Similarly, from what I’ve gathered from my friends in deep/frontier tech, instead of:
How many publications have you published?
And instead…
Where are you listed in the authorship of that research? The first? The second? The 20th?
For context of those outside of the industry, where one is listed defines how much that person has contributed towards the research.
As a slight nuance, there are some publications, where the “most important” individual is listed last. Usually a professor who mentored the researchers, but not always.
And, how many times has your research been cited?
Some more context onto specificity
Some other touch points on why (public) investment theses are broad:
FOMO. Investors are scared of the ‘whats if’s’. The market opportunity in aggregate is always smaller than the opportunity in the non-aggregate.
Hyper-specific theses self-selects founders out who think they’re not a ‘perfect fit’. Very similar to job posts and their respective ‘requirements’.
Some keep their thesis broad in the beginning before refining it over time. This is more of a trend with generalist funds.
Theses are broad by firm, but more specific by partner. The latter of which isn’t always public, but can generally be tracked by tracking their previous investments, Twitter (or other social media) posts, and what makes them say no. Or simply, by asking them.
The pros of specificity
Up to this point, it may seem like specificity isn’t necessarily a good thing for an investor. At least to put out publicly.
But in many cases, it is. It helps with funneling out noise, which makes it easier to find the signals. It may mean less deal flow, which means less ‘busy’ work. But you get to focus more time on the ones you really care about. And hopefully lead to better capital and resource allocation. The important part is to check your biases when honing the thesis. Also, happens to be the reason why LPs (limited partners – investors who invest in VCs) love multi-GP funds (ideally of different backgrounds). Since there are others who will check your blind side.
Specificity also works in targeting specific populations that may historically be underrepresented or underestimated. Like a fund dedicated to female founders or BIPOC founders or drop-outs or immigrant founders. Broad theses, in this case, often inversely impact the diversity of investments for a fund. When you’re not focusing on anyone, you’re focusing on no one. Then, the default goes back to your track record of investments. And your track record is often self-perpetuating. If you’ve previously backed Stanford grads, you’re most likely going to continue to attract Stanford grads. If you’ve previously backed white male founders, that’ll most likely continue to be the case. In effect, you’re alienating those who don’t fit the founder archetype you’ve previously invested in.
In closing
We are, naturally, seekers of homogeneity. We naturally form cliques in our social and professional circles. And the more we seek it – consciously and subconsciously, the more it perpetuates in our lives. Focus on heterogeneity. I’m always working to consider biases – implicit and explicit – in my life and seeing how I’m self-selecting myself out of many social circles.
Whether you, my friend, are an investor or not. Our inputs define our outputs. Much like the food we put in our body. So, if there’s anything I hope you can take away from this post, I want you to:
Take a step back,
And examine what personal time, effort, social, and capital biases are we using to set the parameters of our investment theses.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
Friday last week, I jumped on a phone call with a founder who reached out to me after checking out my blog. In my deep fascination on how she found and learns from her mentors, she shed some light as to why she feels safe to ask stupid questions. The TL;DR of her answer – implicit trust, blended with mutual respect and admiration. That her mentors know that when she does ask a question, it’s out of curiosity and not willing ignorance – or naivety.
But on a wider scope, our conversation got me thinking and reflecting. How can we build psychological safety around questions that may seem dumb at first glace? And sometimes, even unwittingly, may seem foolish to the person answering. The characteristics of which, include:
A question whose answer is easily Google-able;
A question that the person answering may have heard too many times (and subsequently, may feel fatigue from answering again);
And, a question whose answer may seem like common sense. But common sense, arguably, is subjective. Take, for example, selling losses and holding gains in the stock market may be common sense to practiced public market investors, but may feel counter-intuitive to the average amateur trader.
We’re Human
But, if you’re like me, every so often, I ask a ‘dumb’ question. Or I feel the urge to ask it ’cause either I think the person I’m asking would provide a perspective I can’t find elsewhere or, simply, purely by accident. The latter of which happens, though I try not to, when I’m droning through a conversation. When my mind regresses to “How are you doing?” or the like.
To fix the latter, the simple solution is to be more cognizant and aware during conversations. For the former, I play with contextualization and exaggeration. Now, I should note that this isn’t a foolproof strategy and neither is it guaranteed to not make you look like a fool. You may still seem like one. But hopefully, if you’re still dying to know (and for some reason, you haven’t done your homework), you’re more likely to get an answer.
I’ve given myself the last two weeks to focus on introspection. Rediscovering cross sections of my life – crystallizing them in amber – to find where I can improve the most in. And in the process of doing so, I found inspiration in. I’ve known for a long time that I was, by no means, the smartest person out there. Arguably, my best ideas find the roots of their ‘originality’ in insights from others. From…
Friends
Founders
Investors
Subject-matter experts (SMEs)
Podcasts
YouTube videos
Academic journals
Blogs
And, really creative and really, really passionate people, where their passion is contagious.
… just to name a few.
But, that’s the best part!
Though it wasn’t my initial intention to do so, some of my favorite, most curiously introspective, most thought-provoking questions came from my guests during social experiments, particularly those who partook in Brunches with Strangers and Hidden Questions. Frankly, I can’t take credit for any of them. And just as I learned so much about them and myself from each, I hope you’ll be able to do the same. I don’t expect every question to resonate with you, but I suspect at least a small handful will. If so, my only ask is that you pay it forward in your own meaningful way.
Between 120+ guests between the two of the experiments, here are some of my favorite.
On Love and Emotions
When was the last time you said “I love you”?
When was the last time you wished you had said “I love you”, but didn’t or couldn’t?
Who was the last person you lost in your life that hurt you deeply (i.e. breakup, death, loss of friendship, etc.)?
When was the last time you uncontrollably cried?
When was the last time you genuinely smiled?
What emotion have you given an overemphasis on in the past year?
When was the last time you were disappointed in yourself? Why?
When was the last time you looked yourself in the mirror and thought “I’m killing it”?What might have sponsored that emotion?
On Lack Thereof
Is there someone you pretend to like but don’t? If so:
What is stopping you from sharing your thoughts candidly with them?
What is stopping you from liking them?
How many friendships do you regret having broken and never healed? Why?
On Candor to Others and Yourself
What are 2-3 things you look for in a person/friend before you are comfortable sharing a secret? How would you prioritize those 2-3 traits?
What are you dishonest to others about?
Why do you lie to yourself?
Over the past year, what have you gotten better at saying ‘no’ to?
What are some contrarian beliefs you hold deeply to be true?
(Also seen asked as) What is an unpopular opinion you have?
Who have you told? Or have you told anyone else?
If you could pass 1 value/trait down to your child(ren), what would it be?
If there was 1 trait that you could prevent your child(ren) from taking on, what would it be?
What is an unusual habit, or an absurd thing you love?
What is the best lie you ever told?
Do you believe it?
What is the most hurtful comment you once said, wrote, or expressed to another?
How often do you log on or log off of social media due to envy?
On Goals
Do(es) your long-term goal(s) scare you?
What’s the craziest thing you did for X?
Let X be any goal you’ve once had (i.e. job, relationship, family, grades, to learn, etc.)
What is something someone once said to you (good or bad) that keeps you motivated to this day?
What failure has set you up for success?
If you could title your own biographical movie, what would it be called? And what will it be called post-mortem?
What is your 10-year goal?
What’s stopping you from accomplishing it in 1 year?
If I held you at gunpoint, and told you that you had to reach this goal in 1 month, what do you have to do, starting from now?
If you could undo one decision you made in the future, what would that be?
What would you like to have written/said in your eulogy?
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost).Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
Last week, I wrote a piece inspired by a conversation about diversity, and more importantly, the explicit and implicit biases we hold. And over the weekend, I’ve had some time to think. To think and introspect once again about the biases – explicit and implicit – that I hold. I was specifically reminded of an exercise I learned 2 years ago.
Snapping briefly back in time, one of the most creative and self-aware founders that I know – having just graduated from a top-tier startup accelerator, taught me a mindfulness exercise that he uses every year at the Burning Man camp he leads. I’ve used his framework not only to help myself surface my own unconscious incompetence, but also as the curtain call for a few of my social experiments. He starts with having people focus on their conscious self, then gradually begin to explore our subconscious:
“Take a few seconds to notice who stood out to you. Whom you liked. Who might have caught your fancy. Who you plan to meet up or hope to meet up with after today.
“Now, notice whom you just didn’t click well with. Whom you didn’t like. Who you won’t catch up with after today.
But what I found the most profound was his prompt for the last few minutes of the exercise:
“And finally notice who, for whatever reason, you didn’t notice at all. And pause… and ask yourself why you didn’t notice them.”
Like what the above did for me, I hope this exercise helps provide another frame of mind when considering who we unwittingly leave behind. Why we do so. And how we can shed light to our unconscious to bring to our conscious. Hopefully, in the process, expanding the upper and lower bounds of our cognitive bandwidth.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost).Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow!
As a footnote, I wasn’t able to predict the COVID crisis, so my thoughts in this last piece are as evergreen as an oak tree is. Specifically, my lack of foresight on increasing startup valuations and the return of consumer social.
Despite that, the final 2 questions of the piece are still very much pertinent now.
For the most part, founders are pretty cognizant of this X-factor. B-schools train their MBAs to seek their “unfair advantange”. And a vast majority of pitch decks I’ve seen include that stereotypical competitor checklist/features chart. Where the pitching startup has collected all the checkmarks and their competitors have some lackluster permutation of the remaining features.
There’s nothing wrong with that slide in theory. Albeit for the most part, I gloss over that one, just due to its redundancy and the biases I usually find on it. But I’ve seen many a deck where, for the sake of filling up that checklist, founders fill the column with ‘unique’ features that don’t correlate to user experience or revenue. For example, features that only 5% of their users have ever used, with an incredibly low frequency of usage. Or on the more extreme end, their company mascot.
To track what features or product offerings are truly valuable to your business, I recommend using this matrix.
“The optimal strategy is to assume that everybody that is competing with you has found some unique insight as to why the market is addressable in their unique approach. And to assume that your competitors are all really smart – that they all know what they’re doing… Why did they pick it this way? And really picking it apart and trying to understand that product strategy is really important.”
So, I have something I need to confess. Another ‘secret’ of mine. There’s a follow-up question. After my initial ‘unique insight’ one, if I suspect the founder(s) have fallen in their own bubble. Not saying that they definitively have if I ask it, but to help me clear my own doubts.
“What are your competitors doing right?”
Or differently phrased, if you were put yourself in their shoes, what is something you now understand, that you, as a founder of [insert their own startup], did not understand?
In asking the combination of these two questions, I usually am able to get a better sense of a founder’s self-awareness, domain expertise, and open-mindedness.
Last week I spent some time with my friend, who joined me in my recent social experiment, brainstorming and iterating on feedback. Specifically, how I could host better transitions between presentations. She left me with one final resonating note. “Maybe you would’ve liked a creative writing class.”
I’ve never taken any creative writing courses. I thought those courses were designed for aspiring writers. And given my career track, I never gave it a second thought. Well, until now. I recently finished a brilliant fictional masterpiece, Mistborn: The Final Empire written by #1 New York Times bestselling author, Brandon Sanderson. So, that’s where I began my creative journey.
In my homework, I came across his YouTube channel. One of his lectures for his 2020 BYU writing students particularly stood out. In it, he shares his very own Sanderson’s Laws.
The three laws that govern his scope of worldbuilding are as follows:
Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.
Flaws/limitations are more interesting than powers.
Before adding something new to your magic (setting), see if you can instead expand what you have.
Outside of his own books, Sanderson goes in much more depth, citing examples from Lord of the Rings, Star Wars, and more. So, if you have the time, I highly recommend taking one and one-fifth of an hour to hear his free class. Or if you’re more of a reader, he shares his thesis on his First Law, Second Law, and Third Law on his website.
But for the purpose of this post, the short form of the 3 laws suffices.
The First Law
Your ability to solve problems with magic in a satisfying way is directly proportional to how well the reader understands said magic.
The same is true in the world of entrepreneurship. Your ability to successfully fundraise is directly proportional to how well the investor understands your venture. Or more aptly put, how well you can explain the problem you are trying to solve. This is especially true for the 2 ends of the spectrum: deep tech/frontier tech startups and low-tech, or robust anti-fragile products/business models. Often times, the defensibility of your product comes down to how well people can understand what pain points you’re trying to solve. You may have the best product on the market, but if no one understands why it exists, it’s effectively non-existent.
Though not every investor will agree with me on this, I believe that too many founders jump straight into their product/solution at the beginning of their pitch deck. While it is important for a founder to concisely explain their product, I’m way more fascinated with the problem in the market and ‘why now?’.
You’re telling a story in your pitch. And before you jump into the plot (the product itself), I’d love to learn more about the setting and the characters involved (the underlying assumptions and trends, as well as the team behind the product). As my own NTY investment thesis goes (why Now, why This, why You, although not in that particular order), I’m particularly fascinated about the ‘why now’ and ‘why you’ before the ‘why this’. And if I can’t understand that, then it’s a NTY – or in millennial texting terms, no thank you.
My favorite proxy is if you can explain your product well to either a 7-year old, or someone who knows close to nothing about your industry. Brownie points if they’re excited about it too after your pitch. How contagious is your obsession?
The Second Law
Flaws/limitations are more interesting than powers.
Investors invest in superheroes. The underdogs. The gems still in the rough. And especially now, at the advent of another recession and the COVID crisis, the question is:
How much can you do with what little you have?
And, can you make the aggressive decisions to do so?
I realize that this is no easy ask of entrepreneurs. But when you’re strapped for cash, talent, solid pipelines, are you a hustler or are you not? Can you sell your business regardless? To investors? New team members? Clients/paying users?
On the flip side, sometimes you know what you need to do, but just don’t have the conviction to do so, especially for aggressive decisions. You may not want to lay off your passionate team members. Or, let go of that really great deal of a lease you got last year. You may not want to cut the budget in half. But you need to. If you need to extend what little you have to another 12-18 months, you’ve got to read why you should cut now and not later. Whether we like it or not, we’re heading into some rough patches. So brace yourselves.
But as an investor once said to me:
“Companies are built in the downturns; returns are realized in the upturns.”
The Third Law
Before adding something new to your magic (setting), see if you can instead expand what you have.
And finally consider:
Can you reach profitability with what you have without taking additional injections of capital?
Can you extend your runway by cutting your budget now?
But if you need capital to continue, do you need venture capital funding? I’m of the belief, that 90% of businesses out there aren’t fit for the aggressive venture capital model.
How scrappy are you? How creatively can you find solutions to your most pressing problems? And maybe in that pressure, you may find something that the market has never seen before.
In closing
Like a captivating fantastical story, your startup, your team, your investors, and especially you yourself, need that compelling narrative. The hardest moments in building a business is when there’s no hope in sight – when you’re on the third leg of the race. In times of trial, you need to convince yourself, before you can convince others. To all founders out there, godspeed!
And as Sanderson’s Zeroth Law goes:
Always err on the side of what’s awesome.
If you’re interested in the world of creative writing or drawing parallels where I could not, check out Brandon Sanderson’s completely (and surprisingly) free series of lectures on his YouTube channel.
Are these jellyfish friendly or not? Will they “bite”?
As colorful and as beautiful jellyfish are, we are still scared of the possible danger that each possess. So, most of us only admire them from afar. And for many of us who have seen some, we’ve watched them float gracefully in dark blue aqueous solutions across a sometimes distorted film of glass. These beautiful mysteries of the deep blue.
To Touch the Jellyfish
Much like my fascination every time my parents brought me to the aquarium as a kid, I’ve been fascinated with the people around me. Especially about the thin, sometimes distorted, film between these exceptionally fascinating souls and me. The distortion created as a function of society’s, as well as their own, efforts.
Exactly a year and two months ago, I embarked on a journey to host small-scale social experiments, like:
Hidden Questions. A game where no one else knows the question, except for the person answering it. And where the person answering has the choice of sharing the question that inspired the answer or taking it to the grave by taking a shot of hot sauce (about a 700,000 on the Scoville scale, for reference) or a variable number of Beanboozled beans.
Brunches with Strangers. Quite literally, Saturday brunches with strangers. Hosting a cast of people from all walks of life. Like founders, street artists, astrophysicists, concept artists, athletes, criminal investigators, filmmakers, college drop-outs, and much more.
The Curious Case of Aliases. Where players (strangers to each other) under aliases guess each other’s hobbies, occupations, deepest fears, etc. after only playing in a 30-minute game session. For instance, skribbl.io. Cards Against Humanity. Codenames. And Mafia.
And, the most recent addition to my small Rolodex of social experiments, Improv Presentations. A TED talk-like night where people present someone else’s creatively esoteric slide decks, with no context as to what’s in the deck until they’re on “stage”. To the postmortem dismay of my cheeks and core, we saw everything from how to survive a cat-pocalypse to how to master the art of DM’ing using military tactics to how to be a good plant parent.
The Thesis, The Questions
As COVID would have it, the lack of in-person interaction and self-quarantine inspired the last two. Yet, all of which with the same thesis: helping make the world feel a little smaller, a little closer, and a whole lot more interesting. Starting not with the people who bathe in the limelight, but with the people directly around me.
Why is it so hard to be candid with strangers? And sometimes, even harder with family and friends?
Do we need alcohol, drugs, crazy incidents, violence, a lack of sleep, or stress to truly be ourselves?
Though not all-encompassing, people seem to be naturally curious about things, events, status, money, and gossip. Why aren’t people more curious about people – well, as just themselves? Like me, you’ve probably posed and have gotten the question: “How are you?” or “How are you doing?”. And likely, with more times than one is willing to admit, we didn’t really care about what the answer might be. Often times, since we know we’re just going to get a “Good” or “OK” in response.
If you want to have some fun, I highly recommend the next time someone asks you that, say “Terrible”. And watch the computer chip in their brain malfunction for a quick second.
What did I learn?
I won’t claim I found the universal truth or a holistic answer to any of those questions I posed above. Because I haven’t. After all, someone I really respect once told me:
“50% of what you know is true. 50% is false. The problem is you don’t know which half is which.”
So, in my life, my goals are two-fold:
Build a system to help me discern my two halves of knowledge.
Expand the total capacity of what I know.
I will share more on this blog as I am able to draw more lines of regression myself.
But in the context of this post, through social experiments, I’ve discovered that people yearn for psychological safety. Not only does Google’s Project Aristotle share its effectiveness in the workplace, it’s equally, if not more true, outside of it as well. The reason that it’s sometimes easier to share your thoughts and struggles with strangers is that strangers often won’t judge you to the same extent as friends and family do. Frankly, they don’t have much context to judge you from – implicitly and explicitly.
People want fairness. Not in the sense of you get 1 cookie, so I should get 1 too. But a fair system to be judged by. That I will get the same benefit of doubt as you will give to anyone and everyone else. When we all get drunk together, we will all be drunk and we will all relieve ourselves of any filters we may previously have. And though everyone’s drunk personality is different, and frankly everyone will still be judged… For that moment, that night, everyone’s on the same playing field.
The Applications
Let’s take most recent experiment with improv presentations as an example. The initial idea was that everyone should present their own slide decks. As serious or as silly as they might be. But some of my friends were hesitant. In their words, they felt they needed to “impress” or “have better public speaking skills”. Some simply said that they didn’t think they’d “be as good as others”.
Before our first “TED Talks@Home”, I shifted it altogether where we’d all be presenting each other’s presentation. All of us would have no context as to what we’re presenting until we get on “stage”. Whether we were experts on a specific topic or in comedy or deck-making, we’re all jumping into a bottomless pool together. After our second virtual improv night, this past weekend, between muted giggles and visual laughs, one of the presenters told me that it wasn’t as bad as she thought it would be, and that she’d want to do it again.
Luckily, it seems more than 60% of my friends, colleagues, and acquaintances come back to participate in more brunches or game sessions or improv nights. 1 in 4 guests have proactively started friendships outside of the experiments. And about 5% have introduced their new friends to their friend circles. A small handful have also been inspired to start their own. So, maybe I’m doing something right.
Building Communities
The same (psychological safety and fair system) holds true for building communities, creating your corporate culture, and finding and keeping your friend group and your significant other. Although in the context of building communities, but applicable elsewhere as well, I forget who told me this once:
“A strong community has both value and values.”
– The person who told me this, please come claim this quote
Value is why people initially come out to join a community and admittedly, reach out to be a friend. Whether it’s because of who you know or what you can offer or how you can help them pass the time, it’s the truth. Values are why they stay. And safety happens to be one of those values.
In closing
As always, my findings aren’t meant to be prescriptive. But merely act as a guide – another tool in your toolkit – so that you are better equipped for future endeavors.
Like with people, when one day I get to touch a jellyfish, I don’t care about being stung. But I do want to know where I can touch where I won’t be stung. And subsequently, where I will touch where I know I will be stung. The difference between going in blind and not is that when I get stung, I am prepared to be.
#unfiltered is a series where I share my raw thoughts and unfiltered commentary about anything and everything. It’s not designed to go down smoothly like the best cup of cappuccino you’ve ever had (although here‘s where I found mine), more like the lonely coffee bean still struggling to find its identity (which also may one day find its way into a more thesis-driven blogpost).Who knows? The possibilities are endless.
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups!
As much as investors love founders with passion (or obsession) and grit, they also want to invest in founders who have the capacity to grow as individuals as much as their startup grows. And that boils down to how curious and open-minded they are. In other words, how coachable are they? In the past 2 weeks, I’ve had the fortuity to talk to 2 brilliant angel investors – each with their own respective formula for measuring founder coachability.
Formula #1: Assessing Peer Coachability
Last year, I shared a post about the importance of all three levels of mentorship – peer, tactical, and veteran. With the most underappreciated one being peer mentorship. For the sake of this post, let’s call the first angel, Marie. Similarly, Marie finds that peer coachability acts as a useful proxy for founder coachability. And she approaches peer coachability in a very unique way:
What do you and you co-founder(s) fundamentally disagree on?
Following that question, usually 1 of 3 scenarios ensue:
The co-founders can state what they disagree on. And by follow-up question, share how they resolved that disagreement, then how that applies to their framework for resolving future disagreements.
They figure it out on the spot. Better sooner than later.
They say, “Nothing.” And quite possibly, the worst answer they could provide. ‘Cause that means they just don’t understand each other well enough. It’s highly unlikely that given how complex human beings are, that there can be two ambitious individuals who have the exact same outlook on life. Even twins have variations in their perspectives.
Knowing what co-founders disagree on assesses not only how well founders know each other, but also, how they’ve learned from each point of friction. Whether intentionally or not, they become each other’s coaches and push each other forward.
Formula #2: Assessing VC-Founder Coachability
Jerry, on the other hand, tests the waters by offering a controversial opinion about building a business or an insight into the industry, but one he has conviction and experience in. Then, he waits to see how the founder responds. The founder(s) can either:
Disagree, and subsequently walk through where the dissent starts and offer a sequence of data and analyses as to why he/she believes in such a way.
Agree, but still offer how he/she reached the same conclusion.
In either case, Jerry is looking for how mentally acute a founder is and how much room for discussion there is between them. On the other hand, the strike-outs regress to 2 categories:
Disagree, and spend time trying to convince Jerry why he is wrong, rather than working to persuade Jerry to possibly see a bigger picture he might not have considered before. And sometimes, this bigger scope includes a marriage of Jerry and the founder(s) insights.
Agree or disagree, but unfortunately, is unable to substantially back up their claim. Becoming a yes-man/woman in the former, or an argumentative troll in the latter.
The Mentorship Parallel
Unsurprisingly, just like how VCs use these methods to assess founder coachability, I’ve seen mentors use similar methods to assess potential mentees. Many aspiring mentees seek mentorship for its namesake – that metaphoric badge of honor. Not too far from the apple tree when people start a business or come to Silicon Valley to be called a CEO or for their company to be ‘venture-backed’. A category of folks we designate as “wantrapreneurs”.
And unfortunately, many aspiring mentees find bragging rights to be the mentee of [insert accomplished individual’s name]. Yet they don’t actually mean to learn anything meaningful, much less accept constructive criticism. Realistically, no mentor wants to go through that mess. “If you want for my advice, you better take it seriously,” as my first mentor once told me.
In closing
A great VC’s goal is to be the best dollar on your cap table, but they can’t be that Washington if you don’t let them be one. And though it doesn’t call for your investors or board members to micromanage, it does mean you are expected to be candid in both receiving and using (or not using) feedback.
Three moons ago, I jumped on a call with a founder who was in the throes of fundraising and had half of his round “committed”. And yes, he used air quotes. So, as any natural inquisitive, I got curious as to what he meant by “committed”. Turns out, he could only get those term sheets if he either found a lead or could raise the other half successfully first. Unfortunately, he’s not the only one out there. These kinds of conversations with investors have been the case, even before COVID. But it’s become more prevalent as many investors are more cautious with their cash. And frankly, a way of de-risking yourself is to not take the risk until someone else does.
I will say there are many funds out there where as part of the fund’s thesis, they just don’t lead rounds. But your first partner… you want them to have conviction.
Just like, no diet is going to stop me from having my mint chocolate chip with Girl Scout Thin Mints, served on a sugar cone. I’m salivating just thinking about it, as the heat wave is about to hit the Bay. An investor who has conviction will not let smaller discrepancies, including, but not limited to:
Crowded cap table,
No CTO,
College/high school dropout,
Lower than expected MRR or ARR,
No ex-[insert big tech company] team members,
Or, no senior/experienced team members,
… stop them from opening their checkbook. And just like I’ll find ways to hedge my diet outlier, through exercise or eating more veggies, an investor will find ways to hedge their bets, through their network (hiring, advisors, co-investors, downstream investors), resources, and experience.
So, what is that telltale sign of a lack of conviction?
I will preface by first saying, that the more you put yourself in front of investors, the more you’ll be able to develop an intuition of who’s likely to be onboard and who’s likely not to. For example, taking longer than 24 hours to respond to your thank you/next steps email after that pitch meeting. Or, on the other end, calling someone “you have to meet” mid-meeting and putting you on the line.
It seems obvious in retrospect, but once upon a time, when I was fundraising, I just didn’t let myself believe it was true. That investors just won’t have conviction when they ask:
Who else is interested?
A close cousin includes “Who else have you talked to?” (And what did they say?). If their decision is contingent – either consciously or subconsciously – with benchmarking their decision on who else is going to participate (or lead), you’re not talking to a lead (investor). And that initial hesitation, if allowed manifest further, won’t do you much good in the longer run, especially when things get bumpy for the company. Robert De Niro once said, in the 1998 Ronin film,
“Whenever there is any doubt, there is no doubt.”
You want investors who have conviction in your business – in you. Who’ll believe in you through thick and thin. After all, it’s a long-term marriage. Admittedly, it takes time and diligence to understand what kind of investor they are.
In closing
Like all matters, there are always other confounding and hidden variables. And though no “sign” is your silver bullet for understanding an investor’s conviction. Hopefully, this is another tool you can use from your multi-faceted toolkit.
From spending time with some of the smartest folks on both sides of the table and from personal observations, even if it’s anecdotal, the sample size should be significant enough to put weight behind the hypothesis. And, if I ever find myself wanting to ask that question, I aim to be candid, and tell founders that I’m not interested.
