Lorenzo walks through how VCs evaluate founders, starting with a 30-60 minute meeting to assess vision and motivation, then moving to customer calls and references to validate demand. Later stages focus on identifying key risks and bringing in more investors to evaluate them.
Chapters
So early in the process, as we're deciding to meet with a founder to learn more about their vision, the business that they're planning to build, we look at the things we've talked about already. Founder market fit, is this team uniquely qualified? Do we believe there's a problem in the market? And also is the market large enough? So once we get through that initial list of things that we look for, usually the diligence process starts with us just spending more time with the founder. Teams are so important, especially at seeds stage, but also as you continue to build the business. So usually the first step in our Process is spending 30 to 60 minutes with the team, understanding more of the kind of qualitative aspects of the business. Why are you starting this? What do you want this business to be over time? What's your vision? We also think through, have we seen many other people going after this with the same approach? We tend to try to back founders and businesses who can spend some period of time building their business without facing extreme competition. And so once we get to conviction on those items, we try to go outside to gather feedback. So we will talk to other people who experience the problem, know the industry, are the types of people who would be customers of the business either today or in the future, but maybe haven't heard of it yet. If you have early users and early customers, usually in the back half of the diligence process, want to talk to them. So I remember one time where there was a business where the founder was very convincing, very passionate about what they were building. We talked with two or three customers and each of them had said, I know why I signed up for it, but I really haven't used the product much. Maybe I'll go in once a quarter, but I really wouldn't pay much more for it. And I don't know if I could get more people on my team to use it. So seed stage is so early on that we're often looking for an early wedge into a market and people loving the product so much that you could layer on more functionality and get people to pay more and more and more on the other end. One time we've gotten very excited on a customer call. Is a customer saying, hey, don't tell the founder this, but we would probably pay five times as much for the product, so we look more for that. Of do people say, I don't think I would pay any more for this versus I would absolutely pay more if you took it away, I would pay three times as much to have it back. Those are the Types of things we look for. Really critical part of diligence is also speaking with founder references. So people you've worked with, people your co founders have worked with in the past. If you're maybe starting a company out of school, we back a number of student founders every year. We look for these elements of Even if you haven't necessarily had a professional work experience before, have you demonstrated an ability to start something from nothing from there, the diligence process usually continues with centering in on what are our one or two questions that we think are key risks around the business over time and how can we understand how the founder thinks about those risks, Whether it be how the product might change over time, maybe it's certain things around how the business model might evolve, certain. So we usually try to narrow in on what are one or two things about the business, the vision, the team that we really need to understand more. We usually cover those in additional meetings, but that's also a chance for the founders to get to meet more of our team as well and bring different perspectives. So usually in your second or third meeting with a seed stage investor, you may be meeting with more investors on the team. Often during that part of the diligence process, the rest of the team may have questions that you've already covered with the investors that you're talking to. I think it's really critical to understand that similar to sort of an enterprise sale where you may have a champion within the enterprise, they then still make a decision with folks that are outside of the room or people that you haven't necessarily met before. So I think it's really important as you go through the process with now your champion, to understand that there's going to be other people in the room that maybe even behind the scenes need to get up to speed on the business may need to understand certain things that you already believe your champion investor already understands. So just be prepared for that as you enter the final stages of diligence.
