Squad Goals

Part 2 of Show Your Working: Understanding our DD Process

We all know that venture capital can be a bit of a black box. From opaque processes to complex deal structures to the alphabet soup of acronyms, to, well, our personalities, it is no secret that dealing with investors can be wildly frustrating. So in an effort to lift the veil, we are publishing a multi-part series on our diligence process. Over the course of the series, we will cover customer pain, team, product, competitive positioning, the nuts and bolts, and the overall market. We hope that this will make things easier for founders, help them understand our decision-making, and be better prepared for their own ride on the merry-go-round that is taking investment dollars from a VC.

Why do we care about team?

To kick off the next in our series on the BIV DD process, we are looking at the folks around the table - the A-team. A lot has been said and written on every conceivable platform about the importance of building a great team in an early stage start-up, but what it comes down to is this: entrepreneurship is, at its core, a series of decisions. Better decisions result in better companies. And better decisions are made by better people. And those better people also tend to hire better people, who go on to make more, better decisions. And so the cycle of improvement goes on. In our view, it is no more (or less) complicated than that.

So, what do we mean by better people? 

Different funds define ‘better’ in different ways, and many of them do so in all the boring and predictable ways that VC funds have done for years (young, brazen, educational pedigree, repeat founders, ex-[insert decacorn here], hoodie optional). While we have seen lots of talented entrepreneurs and company builders take that well-trodden path, ‘better’ for us is more a way of thinking. It is a series of qualities that in our experience are reliable leading indicators of good decision-making, and these can come from any number of personal and professional experiences. Sometimes that is a previous successful (or not) start-up, but great founders can be forged anywhere, even the overlooked and boring places. Utilities and consulting engineering firms create a lot of fantastic founders (John P. Bertrand, P.E. at Daupler, Josh Mackanic at CivilGrid, Matthew Rosenthal and Billy Gilmartin at SewerAI). There is no right place to find an entrepreneur. Where you developed your instincts is less important to us than that you have them. What we care about is founders who can demonstrate empathy, practicality, focus, honesty, and an unflinching bias towards primary data.

Entrepreneurship = empathy

Empathy is just about the top of our list when it comes to great entrepreneurs because it bleeds into so many of the decisions an entrepreneur makes on a daily basis. And it doesn’t mean hugging everyone all the time. Empathy means the predilection and capability to understand your customers, the pain they need solved, how and why they make decisions, and building a solution focused only on their needs - not what you think is cool. Empathy means understanding what motivates your employees and building an environment that attracts and cultivates talent. Empathy means understanding your supporters (whether that is investors or the myriad other stakeholders who help founders get from A to B) and how to communicate with them to build trust and convince them to put their faith in you. That’s Tyler Henke and the team at Ziptility painstakingly designing software to solve for the hurricane of maps and work orders that litter the average utility operators’ desk when they don’t have a product specifically geared to meet their needs. Or Paul Vacquier and the crew at Beagle Services, Inc. understanding just how important it is for homeowners to trust the professional doing their smart home install, and supporting the plumbers serving them to build that trust. Every one of the Burnt Islanders has this quality because, in our book, the ability to listen to your customers and ask the right questions is a non-negotiable.

Why does practicality matter?

Building a great business requires people thinking practically about what needs to be true for their solution to succeed. Does your solution require a special install that the customer is either equipped to do or can easily hire out? Is the housing around your unit hardy enough to withstand the target environment - constant use, constant battering, or just constant rain? Have you thought about how the customer will dig a hole, pour a concrete slab, connect to power or water, finance the purchase, or whatever else is needed for your solution? Empathy allows you to understand the job. Practicality is the ability to complete the job in the most sensible and effective way possible for customers. One unbelievably practical team in our portfolio is the crew at Cala Systems. With their smart heat pump water heater, Michael Rigney and team have thought extremely carefully about what needs to be built around their product to deliver the value proposition - from ensuring seamless syncing with solar partners, to building a robust installer partnership base, to designing so that all the pipes and connections are exactly where plumbers expect them to be. Customers and stakeholders don’t like to be given homework, so the best founders are the ones that understand that it is on them to get practical and answer these questions before they are asked.

Focus time

The kinds of people we like to back are also unreasonably focused. The entrepreneurial journey is chaotic - the trick is to hold on tight and keep your eyes on the prize: delivering value to people who need it desperately. As our Founding Partner says, Startup Success = Total Capabilities of the Team / Number of Things Worked on. Focus is the process of maximizing the chances of success by minimizing the denominator. Part of focusing is excluding opportunities which might seem exciting when necessary. It is also staying well away from trying to build multiple companies at once. Hot tip: water plus energy plus services plus a brand new widget doing xyz = too many things. Rarely are great companies built that do all of the above. Oh, and working across 4 different continents is almost never a good idea. If you want a fantastic example of focus, take Shane Dyer and the folks at Irrigreen, who have spent the last few years building and iterating on an extremely smart and elegant solution to home irrigation. There are so many exciting ways for this company to get crazy big (commercial landscaping, golf courses, parks, international markets), but this team knows the value of getting things right and are nailing their go-to-market efforts with residential customers and contractors before chasing after other opportunities. That laser focus and diligence has served them well. Focus builds great products, and great businesses along with them.

Let’s get honest about honesty

Teams that cultivate radical honesty are always better company builders. In our diligence process, honesty around risks comes up most often. Please never tell us there are no risks (it happens more often than you might think). There are always risks. What we want to know is that you know what's lurking (or could be lurking) around the corner and are thinking rationally and proactively about how to prepare for it. If you are upfront with us about what could go wrong, we are much more likely to believe you when you tell us what could go right. And bonus, this kind of honesty is a good signal to us that you won’t be afraid of bad news. If you have thought carefully about the risks ahead and communicated that, when the you-know-what hits the fan, we can trust you to share the bad news so that you don't have to weather the storm alone. A bad quarter, a failed launch, a product defect, we've seen them all and more. It's par-for-the-entrepreneurial-course. What matters is that you demonstrate you have the integrity to share the bad news when it happens (because it always happens), and the wisdom to pull in the network to help you right the ship.

What do we mean by bias towards primary data?

The final piece of the people puzzle is an unflinching bias towards primary data: real world information, from your customers, about what they are personally experiencing. Teams who present great reams of data from third-party reports and sources on the market are doing themselves a disservice - we’d far rather hear you tell us what 20 (and ideally 200) customers you spoke to personally said about their needs and wants. The best founders have this instinct built into the way they run their companies. The team at TeamSolve obsesses over their customers’ needs. Mudasser Iqbal, Robin Wong, Michael Allen, Ami Preis and the TeamSolve team had already spent 300+ hours talking to customers when we first met them. They know that an AI hallucination is one thing, but sending out an already over-stretched operator at 2am on overtime to check on a faulty pipe that can’t be fixed for three days anyway is a much bigger problem. Everything they do, from dev ops to product design to sales and marketing is designed around their customers' needs and based on primary data. Constant, direct feedback from customers should be your number one priority not only in the early stages of growth, but well, well beyond. Because if you aren’t solving real-world customer pain points, nothing else matters. 

Wait, so is this just about founders?

No! We definitely index heavily towards founders - as investors we deal with them most often, they are the primary decision makers, and we need to know that we want to sit across the table from them for the next 5-8 years. But it is just as important that the team around the leadership also exhibits all of these qualities and that the team dynamics are strong. It is all about the puzzle that fits together, with each piece taking care of a key part of the company’s Job to be Done. We look for lots of different signals, but we are interested in seeing teams that perform well under pressure, are open to giving and receiving advice, and know their own strengths and weaknesses. Take Daupler CEO John P. Bertrand, P.E., paired with his astonishingly talented CTO Ryan Rosenbaum. John is a true utilities vet. He knows his customers, he's been one of his customers, and he knows how to sell to them. Ryan is a self-taught, extraordinary AI engineer. So when you combine John's ability to pinpoint customers' needs, with Ryan's ability to implement a technical solution to those needs, and throw in a relationship built on total trust, you see magic happen. Surrounded by a team of rising stars, including their VP of Sales, Tim Haer, and VP of Client Success, Chad Feather, who have grown with the company and know the company inside out, you’ve got something amazing - a problem solving machine for their customers. So, yes, we are often reviewing founders’ instincts, as the key decision makers who will be the principal architects of the ‘puzzle’, but we are also trying to get a sense of the whole super squad while we are at it.

Think you can fill out our bingo card? Then reach out to us and tell us about what you are building!