First, we take an "evidence-based" approach to seed-stage startup investing. We assume the research literature on startups, finance, forecasting, economics, and psychology applies—at least until proven otherwise. We also believe the data on past angel investing is the best, though far from perfect, indicator of general seed-stage dynamics. Based on our analysis of this evidence, we don't subscribe to much of the conventional wisdom about seed investing:

  • We don't think we can effectively predict whether a particular seed-stage idea will generate good returns.
  • We don't think interviewing founders tells us very much about their entrepreneurial abilities or aptitudes.
  • We don't think we can analyze a startup's business model in hours or days more accurately than the founders can in weeks or months.
  • We do think that most seed stage startups will ultimately fail, usually through no fault of the founders.
  • We do think the higher risk at the seed stage is more than compensated by higher returns.
  • We do think it's better for aggregate returns to invest in lower profile startups at lower prices.

    Second, we truly see entrepreneurs as our customers and are committed to dealing with them quickly, openly, and honestly. The steps in our process are well-defined and completely transparent, so we'll never leave founders in limbo. If at any time we don't think a startup meets our criteria, we'll immediately say so. We've made our term sheet template public and send founders a copy of our complete investment documents template as soon as we engage, so there are never any legal surprises. Bottom line, we follow the Golden Rule and treat founders the way we wished to be treated back when we were founders.

    Suspicious of "Gut Feel"

    What distinguishes us most from other investors is that we don't believe gut feel is a reliable guide to market potential at the seed stage. Mountains of research demonstrate that the human brain is just not very good at dealing with that much uncertainty. So history has shown that seed investors have difficulty distinguishing between the ridiculous and the revolutionary.