In this writeup, I am documenting my current thought process about finding good products and founders for early stage venture investing. Venture investing is risky but it can also have outsized returns, a 1% improvement in our ability to pick the right products can add 5-10X to our returns. That is why I will keep updating this document as I update my mental models and find better ones.

Information Asymmetry

• Venture capital is an information asymmetry and relationship game.
• You can have Info asymmetry by:
  • Diving deep into few areas
  • Meeting people who are diving deep into few areas
  • Meeting people who have great networks and are embedded into communities
  • Keeping the relationships alive - don’t just take, give. Meet often, reconnect

Due Diligence

I believe that talking to the founders and asking them questions about their product is one of the best ways to find good products and founders. Good founders have thought deeply about their product, they know their customer, they know customer’s burning problems, they know how to sell, build narratives and create network effects, they have good technical teams. Through this process, we want to have a thesis around why this company would 10-20X from its current valuation.

Broad Mental models for evaluating products

Following are some questions I like to ask founders :

• Problem: What is the problem that your product is trying to solve and for whom? Who is your customer?
• Problem size, severity and frequency :
  • How big is this a problem for your customer?
  • Is it a a burning need VS a good to have? The best products are painkillers, not vitamins (Tony Fadell)
  • How often would the customer have this problem (frequency)? A problem that happens every hour/day VS a problem that happens once a year or once in few years
  • Who do you think is your most desperate customer?
• Market Sizing : How many of these customers do you think exist? (TAM, SAM, SOM)
• Product Storyline : What is your press release for this product? What is your product storyline that a layman can understand and rally behind?
• Paying customers :
  • How much do you think the customer would be willing to pay you?
  • Do you have any customer paying you money today? What are your charging/ unit economics?
• Valuation : How much money do you need to solve this problem? What is the valuation and why? What is the timeframe?
• Community building : How do you think about building a community around your product? What is the narrative you want to be associated with and why would people follow and amplify your narrative?
• Team : Who are the people in your team trying to solve this problem?
• Product analytics and product feedback: How are you measuring customer satisfaction and stickiness in your MVP?