What VCs Seek in a First Meeting
We seek… inspiration or meeting a founder who helps us see a market, problem or opportunity through a different lens.
High level in a first 30–45 minute meeting, I — like most VCs — look for a thing or a FEELING more than anything specific to (not) waste that founder’s time further.
Second VC meetings could waste founders’ time especially if VCs do not know what we are looking to answer after the first meeting.
In a first meeting, I bucket what I am looking for into two big picture areas:
(1) Founders’ thinking + storytelling — important for bringing people on the long-term journey (key hires, downstream VCs, partners)
(2) Execution — early product experience, metrics, team hiring signals
The second area is definitely not easy, but it’s more straightforward. The first area is where I find that founders tend to play too small.
Vision = Market Dynamics = Emotion (Tame the TAM 🎃)
The way you talk about the market is really a proxy for your vision. Vision is another word for “building investor emotion,” which should be the main outcome for any first meeting to convert into a diligence process.
Many confuse market at the early stage with total addressable market (TAM). TAM always increases with the best companies so I personally think it’s a waste of time in early stage companies to become overly concerned with today’s TAM rather than discussing what changes TAM. It’s a “check the box” question that asks, “have you done your homework to objection-handle if the natural market is small?” Or “Are you ready to discuss the go to market wedge properly if the market is big and/or crowded?”
Founders need a big enough number in their goals to convince VCs of their ambitions. TAM’s a signal but in many ways it’s noise when you are starting. TAM becomes crucially important later on — just ask any company trying to SPAC (or IPO) in a small or ill understood market, not covered well by analysts. But I think overly precise TAM analyses creates false comfort early on. In that first meeting I suggest spending more time on the dynamics of that market and how your company will be an agent for TAM expansion or shape shifting versus the precise McKinsey approach to explaining the market as a $10Bn, $100Bn or $1Trillion market. This is where the inspiration comes from!
VCs are likely looking to answer questions like the following:
(1) Does the founder define a market in a way that makes me think differently? There’s a huge difference between a well articulated — but could be done by ten HBS grads — description of your market vs. “wow, that’s a different way to look at a market I took for granted!!”
Ah — Astrology is like another form of religion or mental health- a way to get answers and build community in a confusing and ever isolated world! That founder made me believe that 1/12 of the world may share some traits in common.
Or another one from yesterday:
An audio social network whose mission is to scale intimacy and has a 90% female audience. Anecdote to drive it home: there is a regular audio-only session where women talk while taking a bath. Now if that is not a moderated safe space, I don’t know what is!
That first example makes me think astrology could be a modern approach to spirituality, community and self-help (invoking market sizes of meditation, mental healthy and religion). The second example taps into a theme I have been seeking for decades — female-friendly online experiences that are moderated heavily from the beginning — at a moment in time when Airpod (Maxs) + Covid-driven audio is a celebrated trend. Both speak to a forever need people have online and off- to get more energy and connectivity (vs other social environments dedicated building audience and personal brand)
(Both of these examples were inspired by founders I have known a long time, Cole Zucker and Ashley Sumner)
(2) Do the founders use analogies and examples from other contexts to explain their vision for a market that help us believe that change is possible?
While I did not become an investor, I will never forget my first meeting with Trevor McFedries from Brud in early 2017. My brain went from “is Lil Miquela a well executed cartoon?” to “Really, a virtual character is one of the biggest music stars in Japan?” To “The future Disney is likely to debut on Instagram?” Trevor was and is one of those magical people who made the world I thought I knew look different.
(3) Do Founders tell their story better than you do in a space many take for granted?
Honey, another company on my personal 😢 anti-portfolio list. I met Ryan Hudson just as I was coming back into VC six years ago. To many at the time, Honey looked like a toolbar Retail Me Not. I knew toolbar and plugin businesses could be massive from my days at IAC (perhaps the biggest early toolbar company). It also had a reputation for being a spammy way to arb consumers.
But I remember meeting Ryan and his cofounder George Ruan multiple times and being massively inspired as they spoke about the consumer experience. They were combining a delightful checkout experience with the data they were collecting through a shopping experience to reduce friction to next to nothing. To do a thing nearly everyone who loves to shop wants to do to connect more shoppers to the right product faster while they saved money!!!
I was revved up each time as I tried to explain why this was not like all other discount tools, but I never brought them into present to my partners. I wasn’t able to define their market and product to my partners the way they did directly to me.
While VCs can also be great storytellers, one of the hallmarks of a market powerfully redefined ironically may be when the VC partner cannot convey the story well to their partners and/or the market is written off instinctually. The market story must come out of those specific founders mouths.
(4) Does the ecosystem or market around them change with this company if successful? Does this company think about accelerating buying frequency versus market averages? Moving people over from category to another? Move from utility item to lifestyle or fashion item, dramatically move up entire market’s price point, etc?
Starbucks — Who would have thought when Starbucks was founded in 1971 that people would splurge to pay 30x for a cup of coffee with an Italian name? We now know it wasn’t the name or the fact that I can feel good about my daughter buying a milkshake at a coffee store, but “the third place.” One was paying for an experience that expanded the market beyond our wildest dreams. Coffee became an anchor for not just a new working and meeting space, but an anchor to day part the fast food industry in a completely new way (my kids actually like to eat breakfast for DINNER at Starbucks!)
Parachute Home- Consumers used to buy sheets something like once every 5 years, but with Parachute, it is multiple times a year, seasonal introductions, new colors and ultimately new products, like the “it” bathrobe, loungewear and hard goods. Much like Starbucks, they now sell the equivalent of milkshakes too, products that take their consumer through every room in the house. Parachute turned home shopping into a lifestyle purchase, ala Lululemon or Yeti.
GOAT- Dramatically expanded size of sneaker market through one of the best VC pivots of all time. They took something that was viewed as weekend wear or functional exercise equipment and first turned it into a status symbol for a new generation across genders (men drove the fashion trend most initially). Second, people loved their sneaker status so much, sneakers became accessible as a standard work shoe, a trend officially on no VC’s list (other than my partner Greg Bettinelli who was obsessed with it 7 years ago). Everyone thought the market would would be tiny, not “I wear Kobe Undefeateds every day to my home office and will again to my real office.”
Tinder- A huge permanent category that moved from the belief that acquisition would always be heavily driven by paid tactics against a leaky churn bucket, to a heavily viral, beautiful user experience. Tinder changed the game overnight by creating a social phenomena and changed the industry’s margin structure overnight, too.
Startup success can be random, success hard to predict, but the biggest long term brands seem to emerge from those who change something structural about the market at a time when the market is looking for change. The best founders can paint this vision for investors long before it becomes a reality, so as you’re considering your next deck and pitch, think about how to turn your TAM or market conversation into one that’s a vision for a new consumer world.
