Seed bets are largely people bets, and the way I think about them is a set of simple (but hard to know!) assessments of the entrepreneurs — can they materialize labor and capital, are they going to get to traction on the seed (vs what I call a “slow boil” company), and how prolific/encyclopedic are they in terms of understanding the history and present of the product they are building:
-Materialize Labor: “Who are your first 5 hires?” I always try to ask this question. The best answers are where the person literally has five people ready to jump off their existing ship(s) and join and those people are great…it shows that they are a magnetic attractor of talent. But even without that, do they know whom to hire? Fastest ramp is where the 5+ are already ready to jump and those 5 are themselves great.
-Materialize Capital: another description for “heat” but with more of a future lens — how good of a presenter are they? How do I handicap their future fundraising? (“best sign of future financing = current financing” rule still applies). The no-brainer for investment n is investment n+1 from top firm is in the bag 🙂 It’s one advantage to backing “seniors” in the SV sense.
-Is this a “fast boil” company or a “slow boil” company? In other words, is there a good chance — based both on the entrepreneur, TBH team, and idea/product, that they can get to discernible traction early? This is more of a “next fundraising round” output per unit of time measure, because the hard seeds are the ones where they’ve achieved zero discernible (outside) progress on the capital…which some ideas (and fundraise amounts) are more prone to, but of course this is outdone by “ability to materialize capital” 🙂
-How “deep” are they in the domain? If their exposure is nascent, did they REALLY take the time to learn the history, present, and have a theory for the future of the space? I know we call this the idea maze, but I consider it more a sign of intellectual rigor plus ability and willingness to challenge their beliefs and take input from all sorts of people. Robinhood founders met with and studied every past brokerage. Collisons found the rarest of rare books on how the Visa network was built from the 50s to the present and I believe even sought out and met with Dee Hock, the (at the time) 80-something founder of Visa who had moved to a farm. Brex founders took the time to meet and learn from every payments wunderkind. I see this pattern again and again — and EARLY — in people I consider exceptional. They are able to network to anyone from nothing (e.g. Brex guys from Brazil, Collisons from Ireland) — although this is arguably a more important trait for something where major platform/BD deals are crucial.
-Do they want to learn/win, or do they want to think they’re right?
Similar to the above, I really look for people who want to spar/duel around the best way to accomplish a solution — they are headstrong, which is great, but also want to learn of alternatives — somewhat the manifestation of “strong ideas, weakly held”
-Marathon, not a sprint — they will not give up
what in their past convinces me that, when they’re going through hell, that they’ll keep going? Have they faced adversity? What kind and how? Even if silver-spoon-fed, what motivates them and what have they done that requires incredible tenacity?
-Hire fast, fire fast, decision fast — can they make FAST decisions? Are they decisive or indecisive? Are they careful or careless? What is the most caring/selfless thing they’ve done, and the most sociopathic thing they’ve done?
-Image or impact. How much do they seem to care about how others perceive them? Do they want to be liked? Doing the popular thing requires no leadership, doing the unpopular thing requires massive courage AND leadership to get others to follow. Do they want to have everyone like them and assemble a team for adoration, or to win at all costs?
-Motivation in starting the company. Revenge / Count of Monte Cristo? A very rich person has the dual risks of starting a rich-person-problem company (e.g., wine, second homes, workouts, etc) — and, more problematically, tiring and giving up…it’s easy to quit and retreat back into a life of comfort. The most powerful motivator I have ever seen is not money, it’s revenge. Proving the motherf@&$ers who fired you, humiliated you, doubted you, took your baby away etc wrong AND capitalizing on an opportunity you know best. Renaud with LendingClub->Upgrade, Bloomberg with Salomon Brothers->Bloomberg, Duffield with PeopleSoft/Oracle->Workday, etc.
-do they have some path to get their first five customers? Who wants to run their business on enterprise software written by a company with 9 months of cash?
anyway, probably a lot to learn here from everyone, so just sharing! Despite the fact that traction is scientific and “entrepreneur assessment” is not, I actually would like to believe that the opposite is true, given that we’re always buying options of future performance which always comes down to the people 🙂
As a reminder, one lens for evaluating entrepreneurs is the Freshman-Sophomore-Junior-Senior one, which translates to (taking the investable case for each!):
-Freshman — almost no “work” experience, potentially completely uncredentialed (autodidact), but brilliant, naive, and where the naïveté is a weapon that allows them to try something that nobody else would attempt (or that others have attempted and failed at, thus dissuading more status-seeking humans)
-Sophomore — highly credentialed, early in career, has followed a more typical “credentialed” path (Harvard/Stanford/Yale/Princeton -> McKinsey/Goldman/Google -> Business School), been at the top of their class/work group.
-Junior — sophomore but now later in career with significant responsibility and management experience, think a VP of Google or Facebook.
-Senior — a successful startup founder (>$100M exit) who is doing it again.
Most venture capital returns have been in the Freshman and Senior buckets. Seniors have the highest “hit” rate provided (per above) they’re doing something in their domain and for the right set of reasons. Freshmen have the most variance — some of the biggest companies (Facebook, Google, Airbnb, Shopify, etc) but arguably the highest failure rate. The issue with sophomore-juniors has historically been inability to violently swerve off a safe path but there are exceptions (e.g., Instagram).