4 Key Weights for Startup Investing

One of my hobbies is learning how other entrepreneurs and investors think about ideas, markets, opportunities, etc. I proposed a simple theory in Team, Stream, and Not a Meme for entrepreneurs at the earliest stages to find a trend accelerating (stream) with a must-have product (not a meme). I recently heard an excellent interview that offered up four key weights for investing.

Ted Seides interviewed Chamath Palihapitiya about The Social Capital Flywheel on his podcast Capital Allocators. Chamath’s thoughtfulness and conviction really resonated with me, especially as he described what he looks for as an investor. Here are his four key weights for investing, starting at the 45 minute mark:

  1. Product/market fit
    How strong or weak is the product/market fit? It doesn’t matter how old or young the business is, it matters how much the offering matches up to the market demands.
  2. Integrity of management
    What’s the integrity of the management team? High, medium, or low? Again, doesn’t matter how old the business is, but rather how much integrity there is on the management team.
  3. Headwinds or tailwinds
    What are the future prospects for this industry and this business? How strong or weak are they? How poorly described were they in the past?
  4. Internal corporate politics
    How much do internal politics play a role in the business? What are the Glassdoor reviews like? The lower the internal corporate politics, the better.

The first three are pretty common but I hadn’t seen the fourth — internal corporate politics — as a factor in investing. Now, I’m going to pay more attention to it, especially in later stage startups where it’s relevant.

Keep the weights of these four characteristics in mind when considering an investment opportunity.

One thought on “4 Key Weights for Startup Investing

  1. One issue with “corporate politics” is that a lot of the tools investors have can’t see them at all. DAU, growth, financial fundamentals: these are looking at the car but not the driver, and one way or another you’re also buying the driver. As always, whose job is it to know this? In practice, often nobody’s under most current arrangements.

    If I were running a fund I’d hire an organizational psychologist to do spot projects on my portfolio, seeking to understand soft factors. You can approximate this other ways too, of course. LinkedIn: how long are their sales folks sticking around? if they’re bailing they’re probably not making enough money, which means they may not be getting adequate support or the thing might be harder to sell than it looks. Persistent bad GlassDoor reviews can also suggest problems with hiring methods.

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