What does “invest in founders first” mean?

I’ve met with hundreds of startup founders over the last two years, heard almost every idea possible and whenever they ask what we invest in, my first response is generally “founders first,” then everything else. At the early seed stage when you generally have a well thought-out idea, maybe an MVP and hopefully some initial customer traction, it’s all about the resourcefulness of the founding team (can be solo founder too) to execute with little financial support.

Our first meeting is like an informal interview, hopefully more like a conversation, where we get to know each other. I’ve run through your deck, did some research, have probably seen similar companies and am curious to learn more with a focus on “what you’ve figured out.” Based on that, while we’re talking, these are a few of the things going through my head in no particular order:

• Were you on time? My belief is that if you’re on time, you’re late — I try to get to places 5–7 minutes early. That might sound silly to some but I’ve found that those that are early are better prepared for running a successful business.
• Did you research my background? It’s really nice when someone knows my background and some mutual friends. I almost always google founders to see where they worked, who they know and what they’ve done so I can ask more specific questions or reference something. Smart founders are always looking for opportunistic professional connections.
• Do you know what we’ve invested in? Our portfolio companies are clearly posted on our website so you know if you overlap, compliment or fit in nicely.
• We only invest in priced rounds that are aligned with founder’s interests. I’m sorry if at the end of our meeting you say you’re doing a note/SAFE and we don’ t do it. It’s on our website.
• Do you understand the legal terms of investing? A surprising amount of founders (usually first-time but not limited to) have no idea what pro-rata, information rights, vesting, option pool etc is. Please know these as it’s a huge red flag that you didn’t do your homework and are not fully in control of your raise.
• Do you have the needed experience to pull this off / what’s your unfair advantage? This can either be directly in the industry you’re going after or applying knowledge from a previous role. Maybe you’ve been working on this for years, your co-founder is the expert or has been working in this industry for X years. Have you started a company before, who do you know etc.
• Financials are made up (projections) and I’ve only seen a few startups actually hit or exceed them. We all know this when you’re basically pre-rev and/or product but it’s the process, thoughts and thinking of where and how you got to those numbers that we’re interested in.
• Following up on that, when you most likely miss your numbers, how much more capital will you need and when? This is where a bridge (hopefully not to nowhere) round comes into play, which is a great investment opportunity for us to potentially double down before a larger Series A.
• Do you know your industry well? I can’t tell you how many times I’ve asked basic questions about competition, industry size, trends, acquisitions etc and the founder had no idea. This doesn’t instill much confidence.
• Your board of advisors are mostly placeholders that you’ll talk to every so often. It is nice if they are very strategic with sales and potential partner connections but otherwise they are just nice head shots until you have an engaged board of directors.
• You answer questions you don’t know the answers to. There is nothing wrong with admitting you don’t know something, telling us and saying you will find out. It’s sometimes worse to try and be a know-it-all and be wrong.
• Pilots with large companies are basically participation trophies. We need to know that you can sell product, so it’s nice that you have interest but we both know the conversion rate for these are low and unfortunately these usually get dragged out.
• Technical team. It’s almost always a positive to have someone on the founding team who is a developer because then you don’t have to outsource it and it can save expenses early on. On the flip side, we just invested in two technical PhDs who have very little business background, which can also be a problem.
• Can we see you as a billionaire? Maybe not “tres commas” but I was just talking about this with my friend Tony and then Jason Calacanis mentioned something similar during a recent interview I was just at. Basically we need outsized returns so are you the team that can scale, maintain culture and successfully exit all while potentially in the public spotlight, under pressure?
• Are you coachable? I’ve mentioned this before as a quality we highly admire as you begin to surround yourself with people who are smarter than you at certain things. We just want to make sure you listen, consider advice and are decisive.
• Stretching the truth and lies. We expect you to be overly optimistic and excited but please don’t say something that isn’t true. This can be about funding commitments, contracts and where your product development currently stands — this is generally a deal breaker for ethical and professional reasons. I wrote about before about most of us being Polaroid investors, that we need to trust you to do the right thing when we’re not there.

We are also trying to figure out why you’re doing this and what motivates you every day. Let me make it very clear that 99.99999% of the time “passion” is overrated. This is what I imagine when I hear you say it…

Going super founder!

There are a lot of responses like it’s a problem you’ve faced in life or at your previous job; there is no shame in saying you want to make money and/or you really just think that you’re the right team to get this done. It’s easy to see through fake answers that basically say “I just wanted to start a company because everyone is doing it / I’m still looking for a problem to solve, so this is it until I figure it out.”

A lot of our decision is based on this aspect as it really pertains to your vision and where you see the company in 3–5 years. Also you will need to inspire other investors, future employees and clients to share in this so that you can solve it together.

So now you have a better understanding of what we consider heavily before, during and after our meetings. Let me make it clear though that you don’t need to cover all of these and there isn’t really a point system that adds up to tip the scale.