Discover more from Words, By Mat Sherman
It Takes One To Know One
A Rebuttal to Sam Lessin's Suggestion To Having Founders Meet With a Psychologist As a Part of Due Diligence
I write this post as someone who is arguably the best startup scout in the world. From Phoenix, I spotted and got access to founders of Deel, Postscript, Turing, Levels, Firstbase, Metafy, Branch, Ironfish Network, and hundreds of others + have facilitated nearly $4M in funding for uncredentialed founders through my company, Seedscout. As an Arizona State grad with no family ties to tech, I consider myself an outsider, which is why I feel so strongly about the subject of this post.
I recently came across a tweet from Sam Lessin, GP at Slow Ventures and former VP of Product at Facebook, that didn’t sit quite right with me. The premise behind the tweet was that the “old school” ways of evaluating founders by pedigree is going on its way out, and a new way must be adopted. Specifically, he wanted a way to evaluate “who can go the distance and why”. I was liking the post up until he shared his proposed solution; funds hiring psychologists to evaluate each founder before making an investment decision. WOW! See the tweet for yourself here.
First thing’s first, I need to give Sam props for stating the obvious that seems so hard to come by in Silicon Valley...that the market is too efficient to back people based solely based on their pedigree and that these people often underperform the market. Someone with Sam’s background would generally have a hard time admitting this. Kudos. With that said, I wish his proposed solution wasn’t so insanely out touch.
Why Psychologists Aren’t The Answer
The experience of raising capital as an outsider is already absolutely miserable. You got 50 people telling us 50 different things, while those people who underperform the market (as Sam said), attract early stages of capital with more ease. We focus on getting revenue, which was out of style for investors for 10 years, but now they all seem to have changed their mind and revenue is good (unless we’re building generative AI, then it’s bad again?). We try to take investors’ pass reasons seriously but little did we know that they put no thought into them. And even if one is interested, they need to wait for others to be interested too in order to invest. It’s high class hell.
With the idea of introducing a psych evaluation element into the flow, it would be the cherry on top of a horrendously bad user experience for founders. Imagine doing everything else right, and you just need to please a psychologist before getting a check from a VC. Sounds like a confidence crushing process that will do far much more damage than good. Just throw founders another bone they need to chew before they can “earn the right” to a VCs check. It’s insane that this is even being proposed by a notable player in this space.
For the sake of argument, let’s assume that this is a good idea and a VC wanted to execute on this idea and there was a group of willing participants to take one of these tests as part of due diligence for funding. Where are we going to find psychologists with the skillset intersection of evaluating long term aptitude and grit of a human being while understanding what makes a great founder vs. a good one? Any purebred founder is going to sound out of their bloody mind to someone who isn’t deeply exposed to the startup world. They would need startup training to learn how to evaluate these founders in a way an investor is looking for.
At that point, shouldn’t this just be an investors job? Isn’t it an investors job to look a founder in the eye and say I want to go on a 10 year journey with you and build a billion dollar company or “die” trying? Well this goes back to Sam’s point. Investors clearly haven’t been doing this well so he is proposing a solution that could solve this problem for the market. Respectfully, we need a different solution pool to pick from.
My Proposed Solutions
Fund Great Outsiders
The simple idea is simply stop backing the pedigreed founders and instead, back the founders who have all the makings of a good opportunity but are missing the pedigree. What are the makings of a good opportunity from an outsider?
Product built in house
Generating revenue or consistent user growth
Website looks decent
Strong-willed and big eyed founder/CEO (Some say optional, I say 100% needed if you’re an outsider)
You believe in them
I think if the above factors are true, they’ve checked off a lot of boxes VCs put founders through when filtering them. Now you may be trading off pedigree for grit. Which really means you’re trading off early fundraising ability for longevity, but for the early rounds, fundraising is really all about introductions. If you truly believe in the founder and those 4 other points are true, you should be able to make their round come together.
This may sound like simple…too simple of an approach. But I promise you, sometimes the obvious solution is often the right one. The life experience of an uncredentialed founder brings a whole different set of traits than a credentialed one. In relation to his post, a lot of the status BS goes away when funding outsiders (which kicks a lot of the headaches to the curb, and very well could increase returns.)
Partner With Those Digging Up
The idea behind Sam’s post is that we used to operate like X to get Z outcome, we aren’t getting Z outcome anymore, now we need to operate like Y. What’s Y? And in his post, if he is suggesting that another person should evaluate if a founder can go the distance, then he is saying it is a people problem. The issue with his argument is that the new people he wants to introduce into the fold make about 0% sense for the context of the situation. I think instead of hiring psychologists, he should hire people digging up.
The last post I published was around the idea of internet native startup people who discovered startups at their earliest stage and kept aiming to meet more, pushed by curiosity. They have newsletters/podcasts/twitter followings, all focused on startups…I call this digging up. This is in contrary to those who come from an investing background or high status background, who seek to meet founders earlier and earlier in the founding journey, with an effort to get more ownership in the eventual most influential companies. I call this digging down, and it’s in search of something financial, not powered by curiosity. This is what Sam’s whole post is about. Now that investors are investing so early, there is no playbook. So something has to change.
I suggest that instead of investors like Sam partnering with a psychologist, I actually think they should partner with someone digging up. They have the pattern recognition to see what founders persist and what ones fail in the early days, starting on day one of a startups’ life. And I think more importantly, they get along well with founders. It’s natural for founders to talk to them. Sure, it’s not a professional psychology evaluation, but it’s two people who understand startups coming at a founder a 100% different POV. If both align with what the founder is doing, I think it’s worth a strong look at an investment.
Making Progress As An Industry
I immediately saw Sam’s post and was appalled by such a proposition. But then I realized that while the last 50 years of private marketing investing were led by those with professional or finance backgrounds, those people now need help to keep doing what they do best. A psychologist sounds much more safe to someone digging down. And maybe Sam’s first thought wasn’t to partner with a 23 year old high school drop out based in Kansas with a startup podcast and newsletter. But maybe that’s exactly what the doctor ordered.