Part 1 - How I Underwrite Founders and Opportunities: People First
This is part one of a four-part series on how I approach underwriting founders and opportunities. I start with people and opportunity size before I even dig into product specifics. In the hope of providing insight and transparency into my approach, this is a small step in doing just that.
I'm often asked how I underwrite founders and opportunities. Maybe not directly, but at its core, this is what people want to know. And for very good reason. Whether it's founders pitching me, or LPs I'm hoping will back me, or other VCs I’m talking to about a deal. The crux of what I offer is my viewpoint. (And especially in the case of LPs, is it repeatable?)
The word 'repeatable' is really important to emphasize here. Because that’s really what I’m selling to my LPs and co-investors. Which is why, day in and day out, I’m focused on creating a system, or in this case, a lens, that when applied repeatedly, will yield success in finding things that can return 100x, 1000x, and 10,000x on investment — both in terms of money and time. As a fund manager, I invest on behalf of my shareholders (my LPs). Ultimately, what I’m offering them is a system (my system) that, when applied consistently over time, will deliver market-beating financial returns.
Now, before we dig into how I underwrite founders and opportunities, let me caveat this by stating that this 4-part series is in no way 100% comprehensive. I could easily write 100,000 words on this topic and still not cover everything that goes through my mind when meeting with founders and assessing markets. Underwriting, in my opinion, is exponentially nuanced and dynamic. Things change rapidly. Which is why, over time, I hope to write many pieces involving this topic, each exploring different aspects of the same core questions: what am I looking for? How am I judging? Does this person and idea have ‘it’? VC is a judgment business. Or, as is the popular term these days, a 'taste' business. I hope this provides a small glimpse into my process.
I also want to note that in this series, I won’t dig deeply into the product side of things. For the purpose of this series, let's assume the product I’m being pitched is interesting. But with that said, there are a few fundamental things I consider before ever digging into the product or starting diligence. People and opportunity size is the first lens I apply. Sometime down the road, I may write another series on how I approach things with the product, but that in itself is another series.
The Baseline: We're a Specialist Fund - Build, Move, and Make (& optimization)
First off, we're currently a specialist fund, so right off the bat, we don't invest in everything. We invest across three broad themes: technology that helps you build, move, or make things. And within this, only in companies focused on B2B that are based in the US.
Build = builtworld, construction, architecture, robotics, real estate (proptech), etc
Move = supply chain, transportation, logistics, robotics, etc.
Make = manufacturing, engineering, chip design, quantum computing, photonics, energy, batteries, etc.
Included in this is ALSO what I refer to as the optimization layer of these sectors. This is defined as anything that ‘optimizes’ the before or after of the above themes. For example, a software that helps mechanics or mining tech that supports critical mineral collection for battery or chip manufacturing would be within scope.
We're also focused on the entry point: we focus primarily on pre-seed and seed-stage companies, which we define broadly as the first or second institutional capital rounds. (In some very rare circumstances, we’ll participate in a Series A round — I won't get into that deeply, but at a high level, this will only happen in exceptional cases with very close co-investor relationships.)
Now, in nominal terms, this means financing rounds with post-money valuations under $25M are our sweet spot — but this is in no way a hard and fast rule.
A perfect example is our recent investment in Chad Rigetti and Idalia Freidson's new company, Sygaldry. Valuation wasn't the first thing on our minds — all we cared about was investing in these exceptional founders. Truth be told, that is the most important thing EVERY time. (In part 4 of this series, I cover why entry price is not a fast and hard rule.)
People First (Always)
First and foremost, I always start with people. As Scott Kupor from Andreessen Horowitz wrote in his book, Secrets of Sandhill Road, ‘people, product, and market.’ I absolutely agree with this baseline, especially that People always come first.
When I first meet with founders, I always start with their story — not only do I want to know it, but by hearing how they tell it, I can infer a lot both in what they value (and think I value) but also in why they have a unique perspective on what they’re trying to build. I want to know their journey to get to where they are today — I'm listening intently to understand more than just their work experience. I am curious about the adversity and obstacles they've overcome. Not only how resilient they are, but also how able are they to solve a complex problem quickly? Can they shift course and iterate when needed?
I’m also trying to understand and gauge how compelling they might be to future employees: do I think they can attract and retain 100 great employees? Are they open to learning? Do they have a growth mindset? This initial conversation is much more nuanced than direct — and this is where ‘taste’ comes into play. Because what resonates with me may not resonate with everyone.
There is no singular quality I am looking for. You could have worked at a high-growth startup in a similar space, seen the opportunity, and spun out. Or you grew up in the industry you’re building in. Or you have a friend in the space, and you're applying insights from a different sector. There are a million ways to attack any sector. But what I'm really trying to understand is how your experience and expertise apply to what you are trying to achieve. I’m trying my best to understand, while also trying my best to be aware of my own biases and preconceived notions. In a perfect world, each time I come with a blank slate. (But, much easier said than done.)
Track Record of Excellence (But Not What You Think)
A term I frequently hear, which I’ve adopted, is a ‘track record of excellence’. But it doesn't mean "Did you go to this famous school or work at this big company?" In my eyes, there are many pathways to excellence.
Can you solve really hard problems without getting deterred? Do you do it in a way where you end up being the best?
A lot of people went to Stanford or Harvard. I don't find that overly impressive if they grew up in a perfect home with perfect tutors and perfect opportunities. But people who didn't have the best upbringing, or best internship, and still found their way somewhere interesting — now that is special to me. I'm looking for proof that you can overcome obstacles and find your way, even in the most challenging times. I also consider this in terms of risk. Have you taken any? Or, are you just a middle-of-the-road kid who inertia’d your way here? That is uninspiring. (This is unfortunately a profile you see way too much on the investor side — and sadly with too much ego to boot.) I want some spice. I want some ‘prickle.’
Obsession Level
From there, I'm looking for obsession. I want people who are utterly obsessed — not only with what they're building, but with the problem they're solving. Is this something I believe they want to dedicate the next 10 years of their life to?
An example: I'm not a big gym goer. Truth be told, I never want to go. But, the actual reason I try to stay healthy - and, I joke about this a lot - is so I can live longer to be a venture capitalist. I'm utterly obsessed with it and driven to be the best. I view myself like Edmond Dantès in The Count of Monte Cristo with a massive bone to pick — it may take me ages, but underestimate my drive at your own peril. I'm looking for that same level of obsession in founders.
Massive Consumers of Knowledge
One of the most overlooked points of alpha is the ability to learn and evolve quickly. This one is difficult to gauge quickly. I often don't get to spend as much time as I'd like with founders during the fundraising process. But one of the biggest things I love to see is founders who are just learning machines — they’re always looking, researching, consuming, and evolving at a rate that is almost freaky. I love that.
Personally, I love people who read real books. I sincerely believe that to truly learn something deeply, much of it must come from either firsthand experience or long-form content. If you just read short-form articles or Twitter or watch documentaries, that doesn’t excite me. Those are empty calories, soda pop. Tastes good, but has absolutely no nutritional value. Even with blogs, it surprises me that so many popular blogs have 200-word posts. I hope I’m never the person who convinces himself that a tweet is anything more than surface-level feel-good or rage bait. It just isn't enough to provide deep analysis or thought. Now, it doesnt mean they have no entertainment or news value. They most definitely do. BUT, they provide no real, tangible, or profound teaching. So I will poke at this. I like to ask what the last book someone read was, or what news outlets they subscribe to. But the core of this I’m trying to get to is, where are they getting their information? And really, I don't know if there is either a right or wrong answer to this. But these are questions I often ask.
Next week, in Part 2, I'll dig into how I evaluate market understanding, the challenges of fragmentation in industrial sectors, and my framework for determining venture scale.
👍🏻❤️👍🏻❤️👍🏻 Mom
I love: Build, Make, Move. I know exactly what you do and remember it.