Emphasizing human factors
In the early stages of investment, I prioritize human factors—people's judgment, product potential, and market potential—over traditional metrics like cash flows, customer acquisition costs, or virality. With limited data available at this stage, understanding the team behind the venture is critical.
Choosing the right industry and people
Selecting an industry where long-term commitment is viable is crucial. Following the advice of thinkers like Naval Ravikant, investing in top-tier scientists within these industries can offer invaluable insights and research advantages.
The personality focus
The core of my assessment lies in evaluating the founders:
- Intelligence, energy, and integrity: Are the founders equipped with these essential traits?
- Personal attributes: How do they handle ego, respect, truth, and ethics?
- Founding dynamics: What is the nature of their partnership?
- Passion and conviction: Do they possess the drive and humility to start from scratch and persevere?
- Network quality: Can they attract top professionals in their niche?
- Risk assessment: How well do they understand and navigate potential failures?
- Handling hypergrowth: Are they prepared for rapid scaling?
Rigorous due diligence
My due diligence process is extensive, including reviewing pitch decks, team dynamics, cap tables, business models, market analysis, financial models, and technology. Real-world data is a must.
Deep dives and personal reflection
I delve deeper by:
- Analyzing research papers and existing products in the market.
- Conducting customer development through interviews.
- Continuously reflecting on my personal biases and motivations.
- Assessing the readiness to commit time to the startup.
- Evaluating co-investor quality and their follow-up potential.
Decision-making and stock strategies
Before finalizing any decision, a cooling-off period is essential to reassess interest and thoughts.
Finally, I focus on securing preferred stock with conversion clauses and pro-rata rights, ensuring a balanced and strategic investment approach.