
A Seed VC’s Decision Tree  - ghosh
http://robgo.org/2013/10/29/a-seed-vcs-decision-tree/
======
rgrieselhuber
It's interesting to see this mapped out so clearly, but each step along the
way is still entirely subjective.

Most investors, IMO, are not great evaluators of founders (e.g., are easily
fooled by elite credentials), markets (they tend to chase shiny things), or
founder / market fit (this takes a lot of operational expertise to
realistically evaluate).

~~~
zmitri
Agree with you. I'm actually unclear what exactly this is a decision tree for
because its steps are so subjective.

Definitely isn't the decision tree from first contact to investment - that
would be much deeper. It would also have to factor in how much heat there is
behind the deal already - which for most seed firms is probably the most
important signal! Seems accurate as a decision tree to take a meeting with
someone though.

As an exercise, try running some of their portfolio companies through that
decision tree and see what kind of results you get.

~~~
Dartanion7
I'm also curious what inputs they use to evaluate the founder. Surely there's
some objectivity to that element of the decision tree beyond "great guy,
articulate, firm handshake" \--- I'm thinking probably quality of
undergraduate / graduate schools, past exits, years in industry, etc.

~~~
seiji
_" great guy, articulate, firm handshake"_

You can tell a lot by the first five seconds with a person. That's why so many
founders today are the cool kid/hot guy variety and not the Bill
Gates/slovenly nerd variety.

VCs won't take seriously a guy who shuffles-when-walks with zero eye contact
and stares-at-floor-constantly habits unless they come with someone vouching
for them.

VCs will take seriously someone who can project all the right social signals,
act strong, and not let anyone see into their weakness.

~~~
mattgreenrocks
This is precisely why VCs will miss truly disruptive founders. Tech
entrepreneurship is still fairly young, but in that short time, we've already
invented our own unique brand of cool: young, credentialed, hot, saying the
right things.

Oh wait: those are the values of society at large.

We've already abandoned all pretense of disruption. This is just the next
iteration of the elite, where your value as a person hinges on how well you
project your own narcissism.

~~~
michaelochurch
_Tech entrepreneurship is still fairly young, but in that short time, we 've
already invented our own unique brand of cool: young, credentialed, hot,
saying the right things._ _Oh wait: those are the values of society at large._
_We 've already abandoned all pretense of disruption. This is just the next
iteration of the elite, where your value as a person hinges on how well you
project your own narcissism._

I had a chronic illness in my teenage years and 20s, hit a nadir around 24,
and recovered by 27-28. I'm healthy now, but didn't have the start that's
"expected" of people with +4 sigma talent. It's obvious, since I'm 30 and not
earth-shatteringly successful, that I have some kind of health story... but I
prefer not to get into the details with people I barely know. I don't want it
to be the first conversation, but in the contemporary Valley, it would be.
("If you're so smart, why aren't you rich?")

Silicon Valley used to be _for_ weird people. It was about second chances (and
third, and fourth) and outer-range creativity and acceptance of weirdness.
People were too busy building for the cool-kids shit and high-school drama
that dominates now. _That_ Silicon Valley was worth defending, and protecting.
This iteration, this Disney-fied new one, is worth attacking, humiliating, and
bringing to its undignified end.

~~~
seiji
_( "If you're so smart, why aren't you rich?")_

I wonder that of myself all the time. I don't have any medical problems other
than the tragedy of living inside my own fucked up head.

I find the cheap ways of getting rich untenable (abusing users, SEO affiliate
ad crap, stealing personal information, facebook viral shitfests), and the
hard ways are too much for my unconnected self to tackle alone (remaking
credit card processing, remaking flight finding, anything requiring network
effects to get off the ground).

But, for now, I'm not homeless and I have a view of Manhattan from my window.
It could be worse.

~~~
mattgreenrocks
So did I.

I felt that if I wasn't 'great,' then I was squandering my life, and that I
always had to hustle more. I'd internalized a bunch of toxic messages (some
from well-intentioned family), lived in a fast-paced area that focuses on
power (DC), had impostor syndrome, and was a nerd when growing up. It was easy
to think that once I reclaimed my 'rightful' place, that life would be as it
should be.

It should be little surprise that I was well on my way to predicating my
identity on my career. I placed enormous pressure on myself to succeed, and
rapidly started viewing many facets of life as inherently zero-sum. I became
reductionistic in many areas, and my interests narrowed, as I pursued only
things that I was good at.

It was all an enormous lie. I'd bought wholesale into a weird, Nietzsche-
Darwinian belief system where I had to become the ubermensch before I could
allow myself to be human. I had to become someone so I could see myself as
someone worthwhile. I had to achieve so I could rest. I had to be the best,
lest I become undesirable.

In short, I believed I was not worth loving until I'd received a certain
amount of external validation. I'm still being broken of this, but the
break/repair/rebuild cycle is much better than the desperate grasping. Fuck
status. We think we have to waste our lives accumulating it, when it's really
borne out of fear of the future.

~~~
AndrewKemendo
Very interesting writeup because I see shades of that in my own personality.
So how are you overcoming this?

~~~
mattgreenrocks
This is probably a life-long pursuit, but in the short-term:

1\. My wife is very supportive of my ambitions while not letting me be
consumed by them. The vulnerability and accountability are key here.

2\. Regular time doing wholly non-constructive things: video games, reading,
guitar, etc. This took some time to acclimate to, but now I can play a game or
the like and lose track of time, as well as not feel guilty.

3\. Killed my Twitter account, which was sort of the symbol of my personal
brand. Not sure what I'm going to do there.

4\. Pulled back from open source work for now, as it got too close into the
realm of 'being someone' in a particular community.

5\. Meditation and prayer is huge. Admitting I have a problem is still hard
but there's a huge relief that comes from being honest with yourself.

6\. I work at a lifestyle company, which is fairly unheard of on the East
Coast. This helps a bunch with being flexible about when and where I work.

I still make time to do side projects and such, but the effort is mainly
directed towards learning and fun over developing my personal brand. I'm still
strategic about it, as I'd love to do more Clojure in the future, esp.
professionally.

Hope this helps.

~~~
AndrewKemendo
Thanks for the writeup.

 _2\. Regular time doing wholly non-constructive things:_

So how did you get started doing that? I have a reeeaaly hard time with that
one, to the point that I even see time with the family as non-constructive. It
feels like time spent doing anything that is not pushing one of my goals
forward is actively stopping forward momentum (including posting comments on
the internets) so I end up getting frustrated at having wasted time and get
depressed that I haven't done anything. Its a tough cycle.

~~~
mattgreenrocks
I know the feeling. I have a few things I'd like to work on myself.

But the bit about your family? Sounds like a red flag to me.

Do things for yourself on a regular basis. Make time to exercise and spend
with quality people. Talk about this issue. It's _very_ tough to fix by
yourself; you effectively been mentally rooted for now. Understand it will
take time to fix, and the process of recovering will feel strange. I'm
convinced half of it is showing up and resisting the temptation to do just one
more thing.

Optimize for happiness, and trust productivity will flow out of that.

------
ekianjo
What's the point of making a "rational decision tree" when your first decision
point is based on _awesomeness level_ of the founder. That's a useless tree if
I ever saw one.

~~~
seiji
How else can you take credit for _picking_ the winner? Otherwise you're just
following something any dumb programmer could put together. You're not a dumb
programmer. You're an awesome VC who controls the lives of dumb programmers.
The rules of logic, society, and sanity don't apply here.

~~~
syntern
Not surprisingly, the same argument can be applied to:

    
    
        - investment decisions,
        - hiring/contract decisions,
        - travel agencies,
        - and probably countless other services too.
    

We only need some service provider that automates all these functions...

------
lpolovets
Seems in line with a few published results that I've run into recently:

\- For one VC, market size was the main predictor of whether a company would
get a term sheet. ([http://iterativepath.wordpress.com/2013/02/11/how-vcs-
decide...](http://iterativepath.wordpress.com/2013/02/11/how-vcs-decide-to-
invest-in-your-startup/))

\- A survey showed that angels and VCs care about the management team more
than anything, although market characteristics and the product rank highly,
too. ([http://www.go4funding.com/Articles/Angel-Investors/Angel-
Inv...](http://www.go4funding.com/Articles/Angel-Investors/Angel-Investor-
Decision-Making.aspx))

~~~
xivzgrev
Reminds me of Marc's post from 2007, asserting market is biggest factor.

[http://www.stanford.edu/class/ee204/ProductMarketFit.html](http://www.stanford.edu/class/ee204/ProductMarketFit.html)

------
drakaal
Most Seed VC's are investing in a Team and an Idea.

"Founder" as a singular rarely get investments. No man is an island, and you
don't want your investment to get hit by a bus.

~~~
enko
> you don't want your investment to get hit by a bus

So take out life insurance on the founder.

And if two founders are _essential_ for a successful startup, then there is
actually twice as much chance of it failing by one of them being hit by a bus.

~~~
drakaal
A typical pair is a business guy and an IP guy. You don't have twice the risk
because it is assumed that they talk to each other, and you could replace
either based on what the other could fill in.

You can only insure for the amount of your investment, that offsets the risk
but doesn't cover your gains. Also since the cost to do so is 1/10th of your
investment over 3 years, you would typically not opt for the coverage. I don't
know of an investor who does.

There is also a belief that no one guy is "that smart" that anything 1 person
can build has any competitive advantage.

------
gizzlon
What is an awesome founder? Or maybe, what does an awesome founder look like?

This is a serious question. It actually looks easier to gauge the marked than
the people..

~~~
ganeumann
There's been some interesting research on what characteristics successful
founders have (actually, the research was on what successful VCs look for in
founders, so maybe the extrapolation is unwarranted, but... research!)

Here's Geoff Smart's Phd thesis (Management Assessment Methods in Venture
Capital: Toward a Theory of Human Capital Valuation):
[http://www.ghsmart.com/media/press/methods_in_venture_capita...](http://www.ghsmart.com/media/press/methods_in_venture_capital.pdf)

And a simpler overview [pdf]:
[http://www.ghsmart.com/media/press/human_capital.pdf](http://www.ghsmart.com/media/press/human_capital.pdf)

And, he wrote a book called "Who", but he generalized the research to hiring
anybody. Still a good book.

TL;DR: VCs who hire people that have successful experience doing what they
plan to do end up getting the best ROI. VCs who hire people based on their gut
("I like the cut of your jib!" keeps popping into my head as I write this) do
worst.

The simpler overview is interesting reading.

------
graycat
"Always look for the hidden agenda." Okay:

(1) Get publicity for the VC firm and, thus, more deal flow. We can conclude
that they are not getting much deal flow.

(2) Have criteria that look good to the LPs, that is, easy to understand and
like nearly all other VCs. Then forget about the 20% and live on the 2%.

------
LambdaAlmighty
TLDR: Primarily looks for a good market. Without a market, fund only if
founder top 0.01% (whatever that is).

An insightful, actionable blog post. A true gem in the HN treasury.

