If watching Something about Mary taught me anything, it’s that the only thing that beats 8 minute abs are 7 minute abs. So in a world where diligence on private-market operating businesses can take months, it’s natural to wonder how much accuracy would be lost if we compressed all that work down to seven minutes.
My inbox overflows with one specific type of email. It’s from a friend, it has a startup deck attached to it, and it asks me “what I think about this.” I’m about to tell you everything I do in under 10 minutes to get an 80% accurate answer.
Why the big rush?
In a perfect world, we’d have the time and energy to fully consider every deal available to us. We’d speak with the founders, hear their story. We’d talk to the other investors, figure out why they’re involved. We’d meet up with the engineers, get the skinny on the technology at hand. We’d find an expert in the sector, and locate the opportunity within the competitive landscape.
The world we live in, however, has a surfeit of dealflow. In order to move efficiently, we must maintain a system for triaging the flood of deals surging over the levee on Linkedin and Email. We must get comfortable losing a certain percentage of perfectly suitable opportunities to premature dismissal in order to focus on the fat pitches.
It’s easy to spot the folks who haven’t figured this out yet. They fall into one of two camps. Some cut insignificant checks to anyone who ticks their interest; after all, there isn’t enough cash to go around. Others constrain themselves out of lucid decision making with statements like “we have a winning strategy of only following onto rounds which are 90% funded where the lead investor is a top-decile VC and the entrepreneur has had at least two100x exits.” Those guys prefer the camaraderie of the local angel group to the business of actually joining a cap table.
As ever, in Urbach-Letter-Land, good deal triage comes down to well-honed pattern recognition. What’s important to you as an investor will evolve over time, but the process of screening deals against your rubric should run like Jesse Owens.
7 Minutes of Diligence
Abdominal crunches optional, multiple Chrome tabs mandatory:
Screen the Deck. How long is it? How many red flags does it trip? Does the level of design match the company’s stage of maturity? Does the storyline capture your attention? Does it look like the founders are familiar with modern deck templates? If not, is there a good reason for the deviation, or are they generally clueless? How’s the writing? Is it rushed or carefully considered? Can you impute how well they’d be able to market the product from how well they’re currently marketing the opportunity?
Visit the Website. What’s the URL? If it’s convoluted, who else is directly in the space? Does the website’s design maturity match the deck? Does the website’s graphic treatment look like it was built out of the same brand bible as the deck? Are the team members prominently listed with bios and headshots?
Founders’ LinkedIn. Do they fit the basic criteria for stewardship of your money? Where did they go to school? What did they study? What was their first job? How have their careers progressed? What can you infer about their character? How much time do they spend on LI? What do they post about? How much effort have they put into establishing the company’s presence? How many other irons do they have in the fire?
Crunchbase the Investors. Who did the last round? What else are they in? What’s their track record? Do they fit the basic criteria for shared custody of your money? Given the existing names on the cap table, why are you specifically of interest? Do the investors provide ancillary incentive or disincentive to conduct further diligence?
TechCrunch the Space. Who’s working on similar problems? What are they up to? Who’s funding them? What does the graveyard look like? What appear to be the keys to success and trapdoors to failure? On which side of history does your opportunity appear to be?
GitHub the CTO. What do her previous projects look like? Is she active on stackoverflow? How often does she commit to your target’s repo? What else is she working on? How about the rest of the engineering team? If they’re not on github, why?
Google, Page 2. At this point, you’re interested or you’re not. To catch any buried red flags, run the company name, lead investors, and all founders through google to the end of page 2. SEO firms are often only hired to remove damaging links from the first page. This isn’t winning any medals for forensics, but it’ll catch most sloppy coverup jobs.
Assuming your target made it through 7 minute diligence, they’re at least worth a 20 minute phone call. If they fail at any stage, chuck them and move along. You may miss opportunities, but you’ll be working out of a higher-quality funnel on average.