Why Founders Shouldn't Think Like Investors

How VCs Think (00:00:24)

• VCs are trained to think in terms of market sizing, building PowerPoints, analyzing fundraising trends, market analysis, reading surveys, networking, paying attention to the stock market, market multiples, and M&A market.
• They use large company metrics and analysis to evaluate small companies.
• This type of thinking is useful for investment bankers, public market investors, and those in similar industries.
• Founders should not adopt the VC mindset when starting their first startup.
• They should not focus on market sizing, PowerPoint decks, or competitive analysis when they don't have any customers or traction.
• Founders should focus on the basics:
  • Does the idea make sense?
  • Do they have the technical skills to build the product?
  • Can they get customers?
• Founders may adopt the VC mindset because they have worked in VC-related industries or have been exposed to VC thinking.
• This can lead to founders sounding like investors rather than expressing their own passion and opinions.

What's Changed (00:04:56)

• Founders now have easier access to investors' thought processes due to increased content marketing from investors.
• Startup classes taught by non-founders, often investors, emphasize market analysis, pitching, and identifying ideas based on market trends.
• These classes may not provide practical insights for founders since they lack hands-on startup experience.

First Principles (00:06:41)

• Some founders believe that by emulating successful VCs, they can increase their chances of picking a good idea and succeeding.
• However, great investors typically find and invest in companies that already have product-market fit and traction.
• Early-stage investing involves a different skill set, and founders may not learn much from investors at this stage.

Fear (00:08:41)

• Founders may experience fear of choosing a bad idea and wasting time.
• Some founders are overly concerned with whether their idea is "Venture scale" and may avoid starting a company if they believe the revenue potential is limited.
• Startups involve high risk, low information, and high commitment, and these core aspects cannot be changed.
• It's better to focus on areas of strength and problems that founders know well and have personally observed.
• Relying on VC analysis and judgment to evaluate ideas may not be effective, as investors often respond positively to ideas that don't work.

Positive Feedback (00:10:06)

• Thinking like a VC can lead to positive feedback from VCs, such as easier access to meetings and investor interest.
• Investors may respond positively to ideas that aren't necessarily good, and founders should be aware of this.
• Some founders follow fundraising trends and base their startup ideas on what is currently raising money, which can be risky.

First Customers (00:11:18)

• Founders who think like VCs may encounter challenges when it comes to acquiring their first customers.
• Getting first customers is difficult and shouldn't be underestimated.
• Founders often focus on scaling and fundraising while overlooking the challenges of acquiring first customers.
• Launching quickly can provide valuable insights and help founders learn from their mistakes.

Scaling (00:12:56)

• Founders often focus on scaling up too early without first acquiring their first customer.
• Unlike in video games, where scaling up is straightforward, startups face real challenges in getting off the ground.

Macro Vs. Micro (00:14:19)

• Investors prioritize macro-level strategies, such as Excel spreadsheets and build orders, while neglecting micro-level execution.
• Micro-level execution, such as understanding the product and fixing issues, is crucial for early-stage startups.
• Successful CEOs can shift between macro and micro perspectives and excel at both.

Unlearning (00:15:54)

• Founders who think like investors need to unlearn certain skills and knowledge that may not be relevant to early-stage startups.
• This includes corporate politics, Excel spreadsheet modeling, and other skills learned in large companies or investment banking.
• Founders should embrace a beginner's mind and turn off the sources of knowledge that contribute to investor-like thinking.

Time With Users (00:17:22)

• Spending time with users can provide a different perspective on problem-solving.
• Founders should focus on specific details and solutions rather than relying solely on market analysis.
• Founders who have deep knowledge and experience in a specific industry are better equipped to identify and solve problems.

Superpowers (00:20:36)

• Resisting the urge to think like an investor can give founders superpowers.
• Founders with a different filter for good ideas can see opportunities that others miss.
• Successful YC stories often involve ideas that were initially considered bad or off-trend.
• The investment community's predictive powers are not very good.

No Exit Strategy (00:21:42)

• Founders often include an exit strategy in their pitch deck, which is unnecessary.
• Thinking like an investment banker requires an exit strategy, but founders don't need a full plan today.
• Founders shouldn't filter out great ideas because they might only reach a certain revenue, as it's rare for companies to reach high revenue without the founder knowing how to grow it.
• It's okay to not have a full plan and embrace the adventure of entrepreneurship.