Thread by @ryan_caldbeck

1/ I struggle with the conventional wisdom of picking venture companies because of the CEO. I am sure I’ll get roasted by someone that I don’t care about on Twitter for this TweetFury but……ok.

2/ First let’s define what I’m talking about. Consumer co's with $1m-20m in rev. They have rev, products they sell to roughly X00,000 consumers every yr. Data to look at. I’m not applying this logic to tech early stage vc where there is little more than a few slides or rough demo

3/ Traditional consumer thinking is that to be a good investor you have to evaluate the CEO/team effectively in this space. I’m not sure I buy that.

Let’s be clear, I’m not saying the CEO doesn’t matter. I think the team does matter.

4/ I’m saying that the investor’s evaluation of that team/CEO does IMO more harm than good.

5/ Investors tend to look for CEOs/teams that either physically look like them (**massive bias alert**) or have attributes that they think matter. Close to none of them have data on the topic other than their own personal experience. More bias.

6/ Investor that played a sport in college and think you’re competitive in a good way? Often more likely to reward that in evaluation of CEO.

7/ Maybe an investor had luck with 2 or 3 companies where the CEOs went to lower tier public school but worked your way up through perseverance. That’s their pattern recognition and they will consciously or unconsciously look for more like those.

8/ Remember the wonderful trend several years back of backing entrepreneurs that skipped college because… you know, Zuck and Billy Gates did it? (his friends call him Billy btw)

9/ Let me give a few examples that lead to my bias. Note we haven’t looked at this on a broad scale w/ data. I know some others have. I haven’t found one report that I found really compelling (and often find reports that contradict each other).

Let me reiterate- it is my bias.

10/ Ex 1: Personal care co. I flew down to LA about 12 yrs ago to meet with a co. that I knew was growing quickly. Data told a compelling story. First 5 minutes the entrepreneur said “I’m really tired, this job is super hard.” And other similar things.

11/ That wasn’t a great message for me, the investor to hear. As much as I now promote mental health as an entrepreneur, I’ll admit I had a negative bias when she said that. I figured she must know a bunch of bad things about the brand. I changed my flight and flew back to SF.

12/ The company never raised real institutional capital…..until they sold to TPG. Tough miss or as the kids in Vegas say- a bad beat.

businesswire.com/news/home/2018…

13/ Ex 2: Colorado based pet brand. Growing quickly, great size. Everything looks perfect. The CEO was a WILD CHILD. He was out there man. His materials for our investment committee were…..bad. Flat out atrocious. Lots of other "quirks".

14/ The team would go bike riding in the middle of the day because it was sunny. Oh and in the winter? Half wouldn’t come to work because it was snowing and they wanted to ski. Didn’t exactly inspire us to want to write a big check.

15/ Almost the only thing we debated was the team. We eventually made the investment but felt super reluctant.

Result: One of the best investments I’ve ever made.

16/ Ex 3: Personal care co. being banked by a well known investment bank. I mention that because that means the leadership team already went through rehearsals and the materials have been shaped.

17/ Data and story sings. Looks super interesting. But there’s a problem. You see.... the CEO and co-founder talked about their dog, and what the dog would wear about every 5-10 minutes for the 2 hour presentation. Constant comments and jokes about this darn mini dog.

18/ If you don’t think that matters to an investor – that distraction, the signal of “who talks about their dog during a management meeting??”- you’re wrong. And any investor that claims on Twitter it wouldn’t influence them a little is BS.

19/ Also an important footnote. The dog joined the management meeting. Remind you – this is a color cosmetics company. Nothing to do w/ dogs.

20/ We pass. We believe the team is distracted at best and perhaps a bit off at worse.

Boy were we wrong. Here is "the rest of the story".....

thestreet.com/story/13932955…

21/ Maybe I was crazy or bad at that part of my job. Or maybe its just really hard to evaluate teams for every possible dimension that will go right or wrong and how much each matters. Especially when its consumer and you have data on whether or not the co. is performing.

22/ That’s the key point. I think teams matter a lot. I just wonder if – when a co. has real revenue and performance metrics- the investor's evaluation of the talent should override the metrics. Or candidly be used at all.

23/ Is team evaluation for companies w/ real performance metrics just a distracting and counterproductive thing for the investor? I’m not sure but I’ve certainly got a human bias that is leaning that way 😊