5 VC Secrets After 20 Investments

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After investing in 20 startups as of October 2024, here are five non-obvious insights that I have seen about the way that venture capital operates.

And, more importantly, how Tundra Angels finds arbitrage in these opportunities.

1. Venture Capital Often Acts Like Tinder

Investors decide to take founder meetings from the startup’s pitch deck. But the pitch deck is a fallible data point to base such a decision on.

I’m happily married with several kids so I’m not on Tinder. But from what I hear and read about Tinder, a match is based on one single variable - how attractive that person is.

When swiping left or right, Tinder does not account for the other person’s personality, their interests, their emotional intelligence, etc. everything else that actually matters about being in relationship with that person.

Venture capital’s Tinder-like “hot or not” moment often is when the investor looks at the pitch deck.

Investors look at a pitch deck for 20 seconds and decide if they want to take a meeting. But investors optimize for a limited set of variables (i.e. like Tinder) and inadvertently make many assumptions about the company. Yet, they do not know which assumptions are correct… or incorrect.

I once sent a pitch deck of one of our portfolio companies, Pyran, along to a potential investor, who then passed it along to another investor in their network who was strategic to the space.

Several days later, I received an email back from the first investor, who forwarded me the strategic investor’s comments after reviewing the startup’s deck.

The strategic investor drew completely incorrect conclusions about the company. In the visual below, the middle section is the investor’s comments on the company after reviewing the pitch deck. For your benefit, I commented in the margins on what the real truth of the company was. You can see how the investor completely misinterpreted the company’s state of play. Oh no, I wasn’t ticked off at all….

Now, many times, I’ve been guilty of making assumptions about the business from the pitch deck. Then, in the meeting with the founder, I learned that the assumptions that I drew initially about the business were completely off target.

So, what Tundra Angels does differently is that if is within our thesis, I reach out and schedule a meeting. Or, at a minimum, especially if it appears to be quite earlier stage than Tundra Angels typically invests, I email the founder additional questions to clarify my assumptions about the business.

Venture capital’s Tinder-like approach only optimizes for a limited set of variables, but also excludes the possibility that the founding team actually is onto something profound, but just has terrible marketing, messaging, and pitch deck design skills.

✅ An investor’s poor assumptions is the #1 factor that can kill an startup opportunity before it’s even begun. ✅

The only way to combat this is to go beyond the deck and schedule a meeting, or to directly ask the founder about specific things. Investors need to put themselves in a position to ensure that you are not missing a founder that is really hot…. when they look like they are not.

2. An Over-Fixation on Valuation and Stage Sensitivity

✅ I think that it’s a overly convenient for investors to pass based on stage and valuation. ✅

Valuation and stage sensitivity creates an artificial strike zone as a filter mechanism but it’s actually a very poor filter for good opportunities.