Investor-Founder fit in day-zero startups
Faith, Faith is an island in the setting sun
But proof, yes
Proof is the bottom line for everyone — Proof by Paul Simon
I think about this line a lot as I talk to day-zero startups. It came up today, with a startup a friend had introduced me to. I had a working theory of the particular market they were going after. They believed there were going to be great unit economics, and I could see some potential ways to take the business that weren’t on their immediate roadmap that might be interesting with a bunch of assumptions, but ultimately didn’t share their faith that their approach was the right one.
My experience is that a startup begins as a faith-based initiative, with very little if any proof that the idea is correct. While there are other factors and shades of grey here, generally speaking investors (myself included) are looking for confirmation of their priors in a faith-based pitch.
When I started taking pitches from startups years ago, I would find myself arguing with them about assumptions often without being explicit about our beliefs, which of course is a foolish thing to do (but I like to argue). Best case you end up having a friendly back and forth and walk away with nothing useful. Worst case you think the other person is dumb, or a jerk.
What I’ve found to be helpful for me, and I think it’s a good way to approach these conversations as a founder, is to agree the startup is a faith-based initiative (that’s the whole point), articulate what each party’s faith tells them about this startup/market, and then figure out if there’s likely to be an overlap. A lot of the time the answer is just no, and it’s easy to get there in 5 minutes, which is fine.
Founder-investor fit in day-zero startups requires shared faith. Reasonable people can disagree on things where neither one has data.
What’s great about that is that instead of wasting a lot of time arguing around the ideas, you can move on and get some value out of the interaction. Specifically for founders, I think that means using the other 25 minutes of your call (or coffee or whatever) to get on the same side of the metaphorical table as the table as the investor and talk through what they see as the core risks might kill the business, how they might mitigate them (if they ultimately agree), what related opportunities they might discover in the market, and what kinds of milestones they think make sense for the business for them to investor or just for the company to progress towards their goals.
This is always a fun exercise for me because helping founders strategize when you’ve already said no is interesting, and I think for founders this is a great way to battle-test your ideas. Your superpower is your domain knowledge and work ethic. Investors have the advantage of having seen a lot of companies, so should have some good perspective on what kinds of milestones make sense for your business and strategies that have worked for other companies.
Plus it’s a good way to figure out who you might want to call back in 6–12 months, which is very often when you’ll be ready for the round you want to raise today anyway. If you look back at this conversation 6 months later and realize it was useful, that’s probably someone you want to re-engage with, and they’ve given you a good roadmap to get them to yes.
On the other hand, if they couldn’t really articulate a theory of the market, key risks, their opinion on how they’d take the business (you don’t have to agree), and you get some verbose version of “it’s dumb” or “it’s too soon,” it’s probably a good idea to delete them from your address book.
Once you have proof, they should be pitching you, and you’ll have plenty options.
