Investor PULL (what VCs actually want)

Well, Rob, how you doing, man? It's good. Good to see you. You are 4 days into the 2-week PMF sprint and busy as can be.

Yeah, dying, I think is the correct framing of it. Now, the, the interesting thing that I wanted to tell you is that this week we have learned in the Snyder household that my 14-month-old daughter is better at opening child-locked doors than I am. And so we have like, I need to get her to help me to open the doors to get into the cabinets. And so there's nothing that quite makes you feel like, you know, when you feel— I dropped the Physics of Startups lecture, I was like feeling good. I was like, yeah, this is the best thing I've ever done. And that I'm asking my baby girl to open a cabinet so I can get something.

It's just, it's like the definition of having handed the inmates the keys to the prison or something, something like that.

Like, yeah, it's just, it's just like we both have reached— she can't even say words yet. And we've both reached this understanding that like I'm just good at stuff in this room, in my office, and everything else she's gotta lift the load for me there.

Oh man. Like my dad, he's very good at a specific thing and entirely a mess in other parts of life.

Nope. Yeah. Nope. It turns out I have literally one skill and well, let's, let's, let's keep talking about that.

Let's talk about that skill. Hey, with the, I've really enjoyed being back in PMF Camp. Uh, I, I think this is like my 6th or 7th one that I've, uh, I've gone through with you, and one total refresh of the content this time. And so it's super interesting to see how you've incorporated more of your most recent thinking. Um, a couple things that have jumped out to me, uh, one was people are super familiar with your content. Like, they're coming in very— like, they've— you've published so much that, and they've digested it and are implementing it and it's still really hard. Like you say, I, you know, when I'm listening to you in this, I'm like, these are familiar things, like familiar concepts, but it still requires like such a fundamental reboot almost of the way we talk, of the way we do outbound, of the way that we present supply, of the way that we think about why, you know, it would be weird for somebody to buy the thing we talked about in our last podcast. Like it's, And it's like watching the founders interacting, interacting with you in this environment. It's like they're really, you know, it's just hard. And it is the way that it works. Like there's an aha moment. Like, what do you see when it's like they go from intellectually recognizing it to, oh, I get it. And it becomes like almost an instinct, I guess, for how they, how they approach it.

Yeah, it's interesting because I think you're like, everyone comes in having basically read everything that I've ever written. And so I'm always kind of like, okay, what am I going to do on top of that? And what I found is like the thing that really helps, which I just can't release publicly, is showing them other people's calls and other people's outbound. And the, what I've designed the program to do is put them in situations where they have to answer questions where their intuitions are wrong. And so it, and that's just what I've found is like the best way for me to learn. That's about, it's just, it's like have a strong opinion and have it just get punched in the face. And, and just doing that repeatedly is my, is what I'm trying to do to get to the like core thing. 'Cause Pol is really simple. But it is such a foundational concept that it is, it's like the, it's really hard to embrace when everything in you is like geared towards push. Oh, well, those people could buy, they would benefit. And oh, maybe if I, if I implement this sales tactic, then they'll want it and they'll behave differently and maybe da da da. And like, all, there's all of, and maybe if I send this kind of message with these kinds of benefits, right? With this, this kind of pitch, because I saw it on X, like it's, it's, and it's all, and maybe if I add these features and it's all of that where it's, we have this, I don't know, we just have this like malware running. And so my hope is that by showing, and I think the experience shows that startups going through this experience, but which, by the way, we don't have the next one scheduled. I have no idea when the next one is going to be. We'll talk about that another time. But, but the experience of startups going through this and embracing this is it's just a, it's like a repeated punch in the face of like, no, stop pushing. What, what you think is pull is actually you just pitching more benefits, which you think is the right way to describe your product is actually counterproductive because we have to put it like everything starts with pull and in the context of pull, everything you do has to make sense. And it's just such a hard, it's such a simple thing, but it's such a hard thing because it touches everything else.

Yeah. And one, one example of that yesterday was, uh, outbound and, uh, taking my perspective from the outside of, uh, like observing the result of having you to develop the content. It seems like the approach there was you were reinforcing the idea of outbound as a system and we need to think about it as a system. And you kept popping up examples that were like imperfect. One of them had emojis, like they were just like a bunch of very imperfect and the whole group could sit, could like critique them individually and find tweaks. And the takeaway was like, It's working, it's generating, like the system functions. And so stop screwing it up. Like, that's not the thing to focus on. And it, uh, you know, I think the third time that you like ran through that example and we were still falling into the same, like a similar, uh, like a similar trap, I was like, oh, okay. Like time to, time to rejigger the, uh, the screws a little bit on this one.

Yeah. Yeah. That was fun. That's, it's fun too, because Yeah, I, I actually enjoy my role here, which is to kind of lead people. Like, it's— I'm finding my, my vibe in this is to lead people in the wrong direction and like, oh wait, where are we now? Like, what? Yeah, wait, what do we mean here? And, uh, and that, that's been— that's, that's just a fun thing.

Yeah. And I do think this, uh, this PMF Camp has been a lot of fun. It's a really great, uh, set of founders that are, that are really active and engaged. Um, uh, well, why don't we jump into, um, uh, Investor Pool, which is the, the title of your Substack this week. Uh, we are, we are, we're talking about VCs, which as a bootstrapping founder who's never pitched a VC, like, I know nothing about this.

And so, uh, lucky you, everyone who knows about VCs listening to this, all, all 4 people, uh, are like, you lucky dog at this point. But let's just, everyone just thought that because, uh, yeah, no, it's, this is not a topic one that I care about, to be clear. I've raised money, I've helped a bunch of startups with their pitches. I don't enjoy it. I don't think about it very much. I don't care about it very much, but I thought it was an interesting lens to explain a thing that is very common in like how we misunderstand pull because investors have pull, they take actions, they make choices. They obviously, they have pull. And so there's a just common trap that I see founders fall into with their investor pitch, especially the ones who have listened to us for a while. And, uh, and yeah, this is fun.

That's, that's actually, that is interesting because the way that, or anyways, let's, uh, let's, uh, uh, let me hold off on, on that until we actually lay out what your, your case is in this. Um, essentially what you actually, who is this? Uh, any, anything further to clarify on like who this is for and why this is on your mind?

This is also relevant to you if you're not fundraising, if you're bootstrapped, because we're gonna talk about investors, but it's an analogy for understanding what pull actually is.

Yeah. And you know, you've worked with a bunch of founders who, they were bootstrapped and then they hit PMF and all of a sudden, uh, you know, you, you, your product is taking off, you need to grow your team. And so there might be like a cash flow, like,, you know, issue and you need to bring on investors or something like that. And so this is like a helpful framework to have in kind of in the back of your head in the off chance that, uh, you know, you need to fundraise.

Yeah. For a friend's startup, uh, bootstrapped and, you know, 2 years later it's like, oops, we raised $50 million. Uh, right. Like it's, uh, uh, so you may wanna be bootstrapped, uh, you may aspire to be bootstrapped, but the market might force you into another path. And I think that the same is true with WP Engine with, uh, Jason Cohen and like, They were like, I think we could maybe get this to $20K a month in revenue and then we can just chill. And it turns out they became a unicorn because the market had other ideas.

That's really funny. That's really funny. Um, well, you talk about, uh, two ways of approaching VCs. Do you want to, uh, outline that or do you want me to read from your blog?

Yeah, no. So, so the general thesis here is that your pitch to a VC has a theory in it. It has, it has a theory of what a VC's pull is or what the project is on their to-do list. And the most common one I see of our kind of founder, aka overthinker and overachiever type, is that we're making a logical case for them to invest, which is like, we're a strong team. We have strong traction. We have proven something small and that thing could grow. And be big someday. Right. And it's basically the legal case or the, it's, it's a, it's based on the theory that a VC makes a decision to invest or not based on, is this a good team? Is this based on like a set of criteria like that, a set of, of logical, sensible criteria. And, uh, in fact, what I have seen is that that kind of pitch generates a yawn. Because while you might hear that from your typical early stage VC, that is not actually what their pull is, what the project is on their to-do list. And it's really subtle because it's like, oh, I want to invest in a good team, good company, da da da da da. Right? Like that, that's a, that's a really sensible, obvious thing. You can watch them invest. Like their job is to invest. Don't they wanna invest in good comp— well, not quite, because what their pull seems to actually be is I wanna not miss out on something that could be massive. And the difference there leads to a totally different pitch, totally different approach to even the fundraising process. And so it is, yeah, it's just subtle difference between I wanna invest in good team versus I wanna not miss out on next big thing leads to a totally different everything.

Yeah. And what are, um, maybe let's talk about the approach, anything that you'd like to add on, like what's the approach that, you know, the, the logical quote unquote, like maybe it was slightly more conservative, like somebody that's really trying to build a very solid business and then they communicate to VCs in that way. How do they, how do they approach it?

Yeah. So they will, they will usually start the, from the point of like, What are we doing? Which is like sensible. What are we doing right now? And where could it go? And so they'll start like the, you know, all pitches start with like, oh, the problem that we're solving. Right. And it might be, it, it, for, in this case it would be like, I don't know, I'm just thinking of a friend that started up, they just raised and, you know, they're doing, you know, construction stuff and okay, cool. So this part of the problem in construction is like a $5 billion problem a year and it's really annoying for them and we have a great solution to it. And this could also go and grow to, this other thing, right? Like it could also grow and we can handle these other problems in, in construction as well. Right. And that, if you hear that, you're like, yeah, that makes total sense. They like, you and I listen to that. And there are some VCs out there like that will listen to that and be like, yep, I get it. I see it. But that's not a, that's if a, if an investor makes a decision based on, I don't want to miss out on something on the next, like unicorn, that's totally wrong as the pitch. You have to start, I have the kind of like normal, like practical crazy, uh, yeah, yeah, yeah. Um, and then I've drawn this on many whiteboards when, uh, when analyzing pitches before, and it's, it's always the same thing. It's always the same approach here because it's like, you're in your business trying to explain your business to an investor., and, and so you're like, you are gonna probably take the practical route throughout the pitch with like a, oh, and this could be even bigger in the future. Like, here's our path to a big company at the very end. But you've already lost them by that point because again, their, their project was not like, I wanna invest in a solid team, da da da da da. So you have to go and say, uh, all of construction is about to be totally destroyed, right? Or, oh, it's gonna be totally replaced by AI. All of these roles, there's this billion in wages that are gonna be, and like that might not be true, but it's crazy enough that it's like, that it's like, oh wow, I don't wanna miss out on this. Like this seems like the thing, I, this seems like it's on the order of magnitude of a thing that I would be crazy to miss out on.

And so the, like what you have in this for anybody on, on Spotify or YouTube, you can, you can pull it up on, uh, other platforms. Um, uh, we can just describe it and I will put the link to this in the, in the show notes. But what you show is like a gap between the crazy approach and the practical approach. And they're both, uh, essentially linear, um, or like horizontal, um, through problem, solution, product, team. The practical approach is a more conservative way of, of presenting it. The crazy is like a step change above it. And then they, they converge on traction, uh, which is, I guess, like What are you doing now? Like, don't lie about what your business is and your, your results to date. And then the vision, again, like the slope just totally dramatically changes. But how should I, how should I interpret this? Like what in particular, like when presenting problem, solution, product, and team, why are those different?

Yeah, so it's, it's, a, a, if you think that VCs make decisions based on like just investing in solid companies, you're going to position yourself as close to reality and say, we are solid operators. We are solid. Here's the problem we're going after, da da da da da, right? And that's, you're, you're just kind of like living in reality for the pitch, which like, again, this makes sense to us and it makes sense when you're in the business of like, I'm trying to explain you the business. Because my theory of your pull is you're going to invest in a solid business with strong upside potential, da da da da da. And it's like, okay, cool. The, the actual anatomy of the pitch has to be basically insane. Like, like kind of insane because it has to seem like it's basically inevitable that there's going to be a $10 billion company. And so the, the, even the structure of this, the structure of the story is totally different where it's not like we're solid operators, we're doing da da da da da, we're starting here. Right? Like it has to be like, no, this, here's this massive thing that is totally changing. Here's right, like this huge opportunity window that only we can see. We've done all this crazy stuff and right now we're just here, but actually, right? And then you, you dip your toe back into reality, but then you kind of, you keep it at the big broad pitch, like the, the big, very future-oriented pitch, right? Like there's, there's one theory, the, the, the kind of practical theory here is that they're investing based on traction in like the past. The crazy is like, no, they're investing based on the probability of becoming a $10 billion or $10, you know, whatever, billion-dollar revenue company.

Oh, well, let me run something past you, Rob, that you're, you're listening to you is making me think through. It's like, is this the, the, the VC version of like the used car lemons, uh, problem where like when they're buying, they're so heavily discounting everything because they just, as that, if you go in there and you tell them like the, a reasonable, like, you know, the grounded and the way you really think about your business view of your business, they're then going to apply that same discount because from the outside they can't see the difference between these two types.

I don't know. So I, I think of it as like investors have pull and investors have pull. And if we understand what the real project they're trying to do is, you just talk about it differently. You talk about it differently and you approach the fundraise differently. There's all this stuff out there about like, okay, you want to do, you want to structure a fundraising process to generate FOMO basically. Right. And it's like, okay, cool. That, that again ties to this theory that they're not looking to invest, like in theory, they're kind of looking to invest in the best companies, but their true project is I don't want to miss out on the next trillion-dollar company.

Yeah. Yeah.

Yeah.

The embarrassing headline of like passed up on Uber because, you know, partners said that never blah, blah, blah.

And then market was too small and da da da da.

Yeah. Like never going to overcome these obstacles. Yeah. That makes that, that's, that's super interesting. And in my world, which is closer to impact, we, I spent about more, more or less about a year trying to figure out what foundations were and what their, what their animus was, what they were trying to achieve. And I approached it from this red line perspective, which is like, you know, media is, you know, research supported for impact. It's scalable, it's got an audience, blah, blah, blah. And, um, their, uh, their objective and foundations, as far as I could tell, I've never worked in these things, but my, uh, like I met the Jons and what I, I kept looking at their like portfolios and being like, some of this stuff just seems silly. And, uh, like, but it was silly in reflecting on it. It was silly in a direction that achieved something else, which is like, probably highly memorable or, or something that they could, they could then sell and like champion to their, their donors or to their board. Like it was, it was more, it was presented, it was, I suspect, kind of present the story that they could wrap around. It was so much stronger, even if the impact was much more limited, that I like the way it felt to me. And I don't know if founders, who have gone through fundraising, it's like I left that thinking like, what am I missing here? Like what, how could, how could somebody go after this thing, which is gonna like literally by definition have a reach of 10 or 15 people for an incredible expense and miss like this other thing that has, you know, potentially 100,000. And I think it's just because of the story that like they were optimizing for what is something that my, I can get my board really jazzed about and bully and like continue support or something along those lines.

Yeah, that, and that's the thing here is like, if you misunderstand the project on the customer's to-do list on, on just whoever you're interacting with, if you don't understand what the real project in their mind, in their soul is, or if you even subtly misinterpreted here, like these are subtle. Interpretation errors here of like, like we, we see what they're doing. They are investing, they are buying, they are doing whatever. Right. And we, it's like, I think I understand why you're doing it.

Yeah.

But if you have these kinds of experiences where it's like, this, this doesn't feel right. I don't understand why they funded that and not this. I don't understand why they bought that and not the, I don't understand why anybody buys Workday for versus blank. Right. Like it's, it's, it all makes sense to them and it makes sense in their head. They're, they're, what they are doing follows a kind of logic if you trace it back to the real project on their to-do list. And so that's the, that's the kind of point here is if like, if it, this is a sign, right? If it feels like you're pushing, if it feels in, in your case or in a founder's case when it doesn't quite land. You're not sure why it's like, well, maybe let me add more detail. Let me add more whatever to it. Yeah. It's like, no, we have to actually understand what is the project on this person's to-do list? What is their pull? Yeah. Because in your case, there's no amount of additional detail you could have added.

Yeah. Yeah, exactly. Yeah.

You have to change the story to fit the thing in their brain.

Yeah. Yeah. One of our mutual mentors, I think does this really well and he had figured it out around storytelling and I was like, what do I do with this? And looking back on it, it's like, oh, like that's the, like you had, he had, I think intuitively tapped into this is the thing that like these types of foundations that this particular type of, that's, you know, they're not a customer, but in a certain way they are like somewhere between a customer and an investor. And like, they like, this is the thing that they, they need, that they, that they're trying to do. And they would never say that out loud, like, or very rarely. It would be really hard to find one and hard, probably hard to find a VC also that would say the things in the sequence that you said them. But it's— but behind it, you can kind of like navigate to understand, or I guess, you know, how would you maybe— what advice would you give to— not all, not all VCs are the same. I imagine not all VCs are doing like, you know, have, have this, uh, approach or it's maybe a blend or something like that. How, how should founders go about identifying if they are fundraising, what is the motivation or like what, what are, what's the job they're trying to accomplish? What's the pull for the VC?

Yeah, I mean, I think, so I think if a VC is presented with something that they believe has a credible chance of being a $10 billion decacorn type company, They would be weird not to invest in that. And so it's, it's like, I, that is in general the rule for VCs. Hmm. The, there are exceptions. I've met quite a few exceptions. They're gray and they'll tell you why they're different and how they think about it differently. And they'll ask for, right, to discuss this at a different level, but you should by default assume that this is the, the actual project on an early stage VC's to-do list, right? There's later stage, there's all this other stuff, but early stage VCs, That's kind of what they're thinking. And it's a, it's a blend of big thing and team that seems to be able to execute, you're like crazy enough to execute on it. Um, but I think there's like a general zoom out thing here, which is this is a, this is a principle. Pull projects on to-do lists is whenever you're dealing with somebody that you don't control and you want them to do something or you want them, right? Like I want you to invest in me. I want you to buy from me. I want da da da da da, right? Like you just, you don't control them. So you have to figure out what they want or what they're trying to do. And the, the, and this is like relevant if you're building a feature, if you're building, right, if you want them to use something, you just want them to do something, but you have to figure out what they are trying to do. And the, there's just a nuance to this of two things that seem like they're basically the exact same thing if you squint, lead to totally different behaviors here. And so I think this is just like an interesting case of how that comes to be and how that, that shows up in fundraising. But this also shows up in like the products. I, I mentioned Rippling and Gusto and payroll here where it's like, okay, we both, yeah, they're at slightly different times, but like the story is roughly that they both looked at people who are doing payroll with old clunky systems, payroll and HR stuff with old clunky, you know, first gen systems. Um, and, and they're like, okay, cool. Like clearly people are struggling against this. Clearly they will rip something out of our hands, but they had slightly different interpretations of what buyers wanted. So Gusto, for example, was like, well, what they really want is to do the, to have this work be delightful. They don't want to be looking at something that like, you know, basically looks like MS-DOS, right? And, and it functions like it. It's just like ugly, difficult, a lot of clicks. They just want something that's like really clean and nice to deal with. They want a nice experience. And Rippling, I feel like, came and was like, yeah, no, they just want to automate everything, all of the tasks. They want to do nothing to do with this. And those are like very— those are subtly different, but lead to Rippling has a really interesting architecture to their product that I don't think Gusto has. And it wound up being, okay, well, the kind of person who actually cares about the experience in Gusto's case is a smaller business. I'm pretty sure because it's, it's the owner of the business who's the one clicking and logging in and da da da da. And, and for Rippling, well, maybe it's bigger companies where that's the case. And so it's, you can see how just like those subtle differences in understanding what the project on a buyer's to-do list, they lead to totally different businesses.

Yeah. Fascinating. I love it. I, it's got, it's making me think about, um, a customer, but, uh, that I'm working with right now. But, uh, why don't we keep this one, uh, this one short. Any, um, other takeaways from this one, Rob, that you'd leave with, leave with founders?

I dunno. I blacked out like at minute 3.

I don't know what to say. Rob is tired right now. Um, you're gonna, if you listen to this, you'll be surprised that some of the insights that you dropped probably. Uh, but well, this was great. Um, PMF Camp is going on right now, but as a, just like a PSA, excuse me, the sessions are recorded. We keep 'em on, um, you know, on a, on a Notion that, uh, founders in the community can access. And so you don't have to wait until like there's an upcoming PMF Camp to get access to it. If you hit a moment where it's like, I'm wrestling with some of the stuff, I'd love to get, uh, closer to Rob's ideas, like, there's async stuff and there's also one-on-one ways to, to work with Rob. Uh, anything else, Rob, that, uh, we want to add before we, we end today?

There was something, but I've already forgotten it.

So it's gone. Okay. We'll put it in the show notes if so. All right. Take care, everybody. We'll see you in a week.