Today I read a interesting article by Founder Collective about the risks to invest in business through patterns (meaning, if the entrepreneur is white, wear a hood, is young just graduated from Stanford is more probably to succeed compared to a minority women, graduated from a second tired college).
The article reminds us about the importance of both founders (ambition and mindset) and market in the evaluation of an investment opportunity and of the risk to invest following patterns.
Level of commitment: Are the founders full-time? Do they have a year of savings so that they can go heads down for 12 to 24 months? In other words, are they careful planners and have they demonstrated having skin in the game? Increasingly, we see more founders, especially repeat entrepreneurs, walk in our door after they’ve built a prototype on their own dime. On top of showing off their scrappiness, they likely already have some interesting data points on product-market fit, how to acquire customers, and maybe even a hypothesis on how they’ll hack market entry. If you’re a first-time founder, you can hold your own here too, but ask yourself this one question: how committed and knowledgeable are you showing yourself to be on the basis of a pitch deck alone?
Market & economics: The startup’s market should be big enough to meet venture sizing requirements.
Execution & planning orientation: Teams who are great at execution win out every time. In our experience, they can even win despite tough economics, with a possible exception for especially challenging markets.
Customer validation: Is there a buyer? Is there a sufficient pain point that they will take action? Is the team oriented towards product-market fit? And beyond that to sales execution?
Founder mindset: Are the founders growth-oriented? Are they playing to win? Are they team builders? Are they passionate and even mildly obsessive?
Does the team have the right complementary skillsets? Have they worked together before successfully? Can they disagree with respect? Are they all in? Even with a great market and an attractive idea, so much of success comes down to execution, and a strong team is indispensable to this.
In conclusion applying pattern recognition can be unhelpful in the analysis of an investment opportunity.
Full article: https://medium.com/swlh/the-case-against-pattern-recognition-b45b41e3050e