The other day, I tweeted.
“Contrarian perspective here – it’s ok to *not* meet a founder in person before deciding to invest.”
This set off a tweet firestorm — mostly with people telling me in some form or fashion that I was wrong. (Side note: what I love about the VC industry is that people tend to have incredibly strong opinions based on limited or no data 🙂 )
Image source: Giphy
It’s interesting — at this point, I’ve been investing in early stage startups for almost 5 years. And, I still have a lot to learn. But I’ve also personally interviewed 1000+ early stage startup teams.
Most of these teams in person.
And after looking at all this data about interviewing, I believe that it actually doesn’t really matter *for me* whether I interview teams in-person or remotely. Let’s dissect this a bit:
First, why should you interview startup teams in person?
1) I think cultural and historical business norms would say that you should always try to meet people in person and try to build rapport in person to win a deal.
While I don’t think anyone has great proof on this, intuitively, I believe this is true. What better way to win a deal than to fly to a founder and just show up and say, “Hey, I want to invest”.
So for investors playing in highly competitive spaces, this makes a ton of sense. E.g. investors going after a hot series B deal. Or for investors chasing after founders who came from Facebook and MIT who are building the next scooter company that utilizes AI. Building rapport is really important to winning hot deals.
For me, most of my deals are not hot when I invest. Hah. Often these companies go on to be hot later. But since I’m first check into companies when they basically have nothing, usually it’s just me and the founder’s mom who are investing. Writing the check is in itself the rapport-building activity.
2) You can assess founders better in person.
I also believe you can assess founders better when speaking with them in person. You can detect when there is co-founder tension / drama / something weird. You can detect when a founder is stretching the truth. All kinds of stuff.
I know this because I’m a super blunt / direct person. And, I’ve often called out things to founders directly. For example, there have been many teams over the years where I’ve noticed tension in a meeting between the co-founders. I’ve often pulled founders aside afterwards and mentioned my observations as such. e.g. “Hey, it seems like there’s some weird tension between you — are you having a lot of miscommunication?” And every single time, founders have broken down and admitted that they’ve been having some problems. You can definitely detect co-founder issues in an in-person meeting.
So given these huge benefits, why wouldn’t you meet a team in person? A bunch of reasons…
1) Unconscious biases.
It’s amazing how a team that is great at pitching can really “fool” you. There have been so many meetings I’ve taken over the years where you walk away from the meeting feeling really pumped and believing that the founders are amazing. And you think, “These are great founders!”
And then, I look back at my notes 24 hours later and re-read everything they’ve done or not done in the last few months, and you think, “Oh, this just sounds ok – they’ve only sorta achieved some things.”
Charismatic people can really fool you. Having charisma is a great trait, just in general. But, it can mask actual execution.
Moreover, charisma is cultural. What we find inspiring in a leader in the US is very different from what other people in other places of the world find inspiring. So, we have unconscious biases around what makes a charismatic leader. Extroverts, for example, in the US have a huge advantage. We generally think of extroverts as highly charismatic people. But extroverts are not actually any better leaders than introverts. There are plenty of examples of successful introverts who manage to inspired large groups of people towards a common goal. So we let our unconscious biases get in the way in assessing things like leadership because of the way our culture is set up.
One of my learnings over the years in venture is that it’s really important – as much as possible – to be objective. I try to assess what a team has actually achieved. Or what they are actually doing. But very often, meeting people in person detracts from assessing this, because some founders are much better at selling the dream and others are much worse.
There’s a well known top female VC who works at a very well known VC fund, and she was telling me a few years ago that one day her partnership heard 2 pitches. One of the pitches was by a woman who matter-of-factly just talked about numbers and growth and how she could build a big company. Another pitch was by a man who sold the dream and hadn’t done much of anything. After both meetings, the rest of her partnership talked about how they could really relate and build rapport with the male founder who was quite the visionary. This top female VC, however, realized that, although she was more excited about the male founder’s pitch, when she objectively thought about what he had accomplished, she realized it wasn’t much. And that the female founder had knocked it out of the park although her storytelling wasn’t as amazing. This story is a true story and this happens all the time in venture.
In the venture community today, we reward “visionaries” much more than executors. And a big reason for this is that we make investment decisions based on pitches rather than on execution (aka working) in our decision-making. This is a big problem and this is precisely what I want to change at Hustle Fund (though it takes baby steps).
The last piece about unconscious biases is that sometimes what we see in-person scares away traditional VCs. Such as pregnant women. Being a pregnant woman and pitching investors is NOT a recipe for success to raise money. Although there are plenty of successful female CEOs who have children while running their respective startups, it’s still not a positive sign to most VCs. This is a shame and something that is only noticeable / an issue when pitching in person.
2) Meeting teams in person limits your deal flow.
At the earliest stages, it’s important to see a lot of dealflow. If you are only doing meetings in person, it means that:
- Companies can only be located in your geography
- You need to spend a lot of money and time to fly to other places to see companies
- You need to spend a lot of money to fly companies to see you.
If you’re a series B firm, all 3 of these can be fine limitations. You presumably have enough management fees to spend money on travel, and presumably, you don’t need to be seeing tons of companies in order to do great deals. But if you are at the earliest stages — such as a pre-seed fund like ours — you need to be seeing lots of deals and generally don’t have the budget to either do a lot of traveling or to fly companies to you.
And at the pre-seed level seeing lots of top-of-funnel deals is critical!
So, meeting teams in person is a tough strategy for small firms like ours — for both time / money reasons.
3) Technology is good-enough for remote meetings these days.
Technology is actually quite good these days. I think 10 years ago, vetting people through video conference might have been rough. But, today, Zoom.us, for example, is an amazing product for doing video interviews. You can see a lot with strong connectivity — including founder tension — and you can really feel like you’re in the room with the founder.
4) Meeting people in person is inefficient.
I don’t want to waste founders’ time and my time. The priority activity for them is in running their business. So for the most part, driving all around the Bay Area (in traffic!) is not a value-add activity for anyone. If we happen to be in the same place at the same time, that’s great — such as a conference / event / co-working space, but for the most part, commutes are a bear that I don’t think anyone should have to put up with if given the choice.
5) Lastly and most importantly, if you construct your portfolio in a certain way, it’s actually ok to miss things in a virtual interview.
At the end of the day, doing VC right is actually much more about portfolio construction and modeling than picking. This is surprising to many people.
After investing in hundreds of startups, I genuinely believe that it is much better to invest based on execution rather than to try to assess accurately based on talking. But, the entire industry is largely based on making investment decisions based on talking. This is a grave mistake, in my opinion.
Here’s an analogy in the job market — in the old days, you would interview a bunch of candidates. And then you would pick someone to hire largely based on talking. But as it would turn out — people who are great at selling themselves in the interview process are not necessarily the best performing hires! Business people have figured this out, and so these days, at so many companies, you no longer just talk in a job interview. Hiring teams now try to assess in other ways — through projects / short term contracts / tests / etc. In other words, execution-based tests are now used much more commonly to better assess hires.
In VC, the right analogy would be — why don’t we make a small bet for seemingly promising companies? And then try to assess based on execution whether or not to write a much larger check. (On the flip side, startups can assess us/me, to see if I’m living up to standards as an investor.) And as performers perform, let’s continue to do this. This seems like the much better way to assess performance — by actually assessing performance itself rather than talking.
For this reason, this is why I think it’s actually ok to miss some things in interviewing founders for a potential investment — because I care much more about how a team performs than how they talk & look.