1/21: Every early stage startup pitch looks the same at a foundational level. This means that the analysis of every early stage startup also looks similar (especially true in #venturecapital and #fintech). Unpacked:
2/21: Every pitch has four main high-level asserted statements: A problem statement, a solution statement, a financial statement and a team statement.
3/21: The problem statement is the Founder’s way of helping his/her audience internalize a problem they’ve discovered in their target market and an articulation of why it’s a gigantic and profoundly painful problem to a defined group of customers.
4/21: The solution statement is the Founder’s way of articulating a better way of solving the profoundly painful problem they described in the problem statement paired with whatever evidence they have that the end users agree (i.e. - market traction).
5/21: The financial statement is a way of articulating the prize that everyone is playing for if the problem and solution statements are correct.
6/21: The team statement is the Founder’s way of articulating why the audience should trust that the problem is well understood, the solution is well designed, and that the assumptions baked into the financial model are “experientially grounded”.
7/21: The job of an early stage investor is to dig in, tear apart and have opinions on all four of these statements. The work becomes the “path to conviction”.
8/21: Using one “statement” to prove another is lazy but pretty common in today’s over-saturated venture ecosystem. The most common refrain I hear is: “The Founders are great so therefore....”. The team might be great but isn’t proof of the other statements.
9/21: The art in tearing apart the problem statement is to figure out how profound the problem is and what subset of the market is willing to pay to solve it. Founders typically overstate how painful the problem is and don’t always understand how large the addressable market is.
10/21: The art in tearing apart the solution statement is to figure out if the described solution is possible to build and if built is it “better by enough” to overcome inertia and friction. Founders typically underestimate inertia and overestimate how good their solution is.
11/21: The art in tearing apart the financial statement is to figure out the key drivers of the financial outcomes and ground them to known analogues in the current ecosystem. The more a model describes “existing norms delivered in a better way” the more believable the output is.
12/21: Unit economics matter more than Founders want to believe and not enough attention is typically paid to how the units are manufactured. Manufacturing costs are almost always underestimated (OpEx and SG&A) and crush many startups as they scale.
13/21: Market penetration analysis needs to be put in the context of the competitive landscape and too many Founders assume that the competition is slow and stupid. Competitors might be slow to change but they’re not stupid nor are they inert and they have scale on their side.
14/21: The art in tearing apart the team statement is to find a way to see through charisma and judge a team on other competencies. Charisma can be blinding and many team’s historical successes aren’t correlated with their odds of success in building something new.
15/21: Of importance: The team’s track record, their industry specific knowledge and ability to identify landmines, their experience navigating regulatory complexities, their moral compass when faced with economic tradeoffs, and their ability to attract world class talent.
16/21: Many VCs throw out a company’s solution and financial statements on the grounds that they will change over time as the company learns. This might be true but these statements set the foundation for the company’s learning agenda and are windows into how the Founders think.
17/21: LPs shouldn’t be paying VCs to be 95% talent scouts and 5% business analyzers. Winning plays out over time and if a VC can’t give specific advice day zero then they’re setting the stage to only give generic advice over the next 7-10 years (which is a commodity).
18/21: What “VC conviction” looks like coming out of this process is a narrative about what’s being created, what has to go right to build a gigantic business, how it fits with a view of the future of the ecosystem and what the reward is if things go roughly according to plan.
19/21: The VC is going to be wrong on most details coming out of this process but if they’re directionally right on the drivers the destination will still be an extremely attractive one. Teams can adjust to market feedback but businesses can’t adjust to market forces.
20/21: Venture investing is easy to do poorly and hard to do well but this is true of most professions. There are other ways of being successful as a VC but being thorough and complete is what works for me. I appreciate there are different styles of investing but why be lazy?
21/21: Curious to hear what investors with different styles think. RT with comments so we can get a discussion going!

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More from @fintechjunkie

27 Nov
1/30: There’s a supply/demand imbalance in the startup world (too much capital/not enough great companies). This means it’s a great time to be a Founder if you have an epic idea, but how do you know if your idea is any good? I asked some amazing VCs and here’s their advice:
2/30: Put a prototype in users' hands. When you try to take it away from them, do they kick and scream and tell you to get lost? If so, you've got a good idea. If not, keep iterating. (@Mark_Goldberg)
3/30: Can you can describe it in 30 seconds or less to a tech-illiterate relative at Thanksgiving? Great ideas are simple, but non-obvious. (@Mark_Goldberg)
Read 30 tweets
19 Nov
1/30: Many #Startup CEOs struggle to redefine their own role as their company scales. I’ve been asked by startup CEOs many times: “What should my job be?” What follows is a framework I’ve used to guide various CEOs through the evolution from a “Small Team CEO” to a “Proper CEO”:
2/30: But, before I share the framework I almost universally have to re-set their expectations because most first time CEOs think that their primary function is to “make all critical decisions”. Breaking them out of a “control everything” mentality is uncomfortable but essential.
3/30: What’s disappointing is that many CEOs can’t wrap their heads around the thought that they won’t be directly involved in everything happening at their company and in the middle of all critical decisions. Only when they’re ready to deal with this they can evolve.
Read 30 tweets
10 Nov
1/32: Building a #StartUp business has similarities to a spacecraft crashing down on an unknown planet. I talk to Founders about this all the time. Unpacked:
2/32: We’ve all seen blockbuster “how the heck are we going to survive” SciFi movies. The one commonality is that there’s an obvious prioritization of what has to be solved and in what order.
3/32: This is because all human beings need 3 things to survive: Oxygen, Water and Food. Without any of them we can’t survive. But, bad things start to happen if we don’t have oxygen for 3 minutes, water for 3 days or food for 3 weeks.
Read 32 tweets
3 Nov
1/29: Have you ever had a concept explained to you that helps frame complex issues you’ve been wrestling with and opens your eyes to new possibilities? A concept that I share that seems to resonate well with Entrepreneurs and Investors is what I call “Truth Files”. Unpacked:
2/29: So what is a “Truth File?” Simple definition: “A truth file contains data that without need of additional confirmation can be considered factual.” Not all truth files are 100% accurate and not all are valuable, but the best ones can be transformational.
3/29: The operative question that defines how valuable a truth file is: “What does the truth file reveal that can be used as a substitute for investigative work or help make more accurate decisions?” The first reduces friction and the second improves outcomes.
Read 29 tweets
26 Oct
1/15: Of all the questions I’m being asked on recent diligence calls about our companies, the most common is “What are the skills/gaps of the Founder(s)?” Given COVID, this has become an important topic so I thought it would be worth sharing how I think about the issue. Unpacked:
2/15: In every conversation I try to level-set the outsider and speak in “truisms” before diving into specifics. The first truism is that the skill set needed to run a high growth, disruptive start-up is multi-dimensional and that it’s about tradeoffs vs. insisting on completism.
3/15: We’d love if our Founders were world class on dimensions that include: Action orientation, ability to make decisions with limited/changing data, magnet for talent, ability to frame a business vision, and fundraising skills. These are just a few of the many important skills.
Read 15 tweets
16 Oct
1/42: What the heck is going on with the #fintech ecosystem’s obsession with Neo-Banks? Do they actually make sense in the US? Traditional Bankers say “absolutely not”. I say “they can”. Unpacked:
2/42: Because there’s so much confusion about the topic, it’s worth starting with a definitional statement about what a Neo-Bank is. One definition: A Neo-Bank is a COMPANY that offers a LIMITED SUITE OF BANKING PRODUCTS with NO OWNERSHIP OF BRANCH LOCATIONS.
3/42: COMPANY does not mean Bank. There are many forms and fashions of Neo-Banks but not many of them are actually Banks. It’s possible with today’s technological solutions for a non-Bank to offer Banking products.
Read 42 tweets

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