Why We Passed on This Startup (Episode 2)

Once upon a time, I met a startup team.

Let’s suppose the two co-founders are Victor and Sarah, with ABC Startup in the insurance industry. Sarah brought the industry/business acumen, and Victor brought the tech and startups side. I first encountered the founding team via Zoom. I followed up and asked for a second conversation. I became very impressed with the startup’s technology.

Leading Up to the Pitch

As part of the conversations with Victor and Sarah, the co-founders showed me a demo video that showed the customer/users walking around using the product. It was very cool technology that clearly solved a large problem in an industry, especially considering the current state of the art. Additionally, we also have several Tundra Angels investors whose businesses had strategic industry alignment with ABC Company.

As part of our process, I have a number of conversations with the founding team to determine fit and if it makes sense to pitch to the entire Tundra Angels group. The conversations up until that point went well. I felt strong enough about the opportunity that I decided to move them to pitch for the entire group. The founders pitched for the group. When we took indications of interest, we had broad enough interest that we moved ABC Company into due diligence.

Per our process, we have a one hour deep dive call with the founding team with Tundra Angels investors who expressed interest in vetting out the opportunity on behalf of our group.

The next step included the next part of the process where we ask for specific pieces of information. One of those requests involves speaking with several of the startup’s customers for customer reference conversations to understand their experience with the product.

That’s when things started to get odd.

An Uncomfortable Feeling about Customer Reference Calls

I still remember sending an email to Victor asking for several items to kick off the specific requests for our due diligence process, one of them being the customer reference calls.

Instead of an email back, I got a phone call. I answered.

Victor: “Hey Matthew, it’s Victor.” (He was trying to sound cool and collected, but I could tell he wasn’t.)

Matthew: “Hey man.” 

Victor: “I have a few questions. Why are you asking about the customer references?”

Matthew: “Well, you said at the pitch that you have several customer pilots in place. Part of our process includes hearing feedback from them about their experience with the product.” 

Victor’s non-verbals were screaming through the phone. It was apparent that he was highly uncomfortable with several standard due diligence requests. I maintained that we needed the information.

Victor asked for a Zoom call. We scheduled one a few days later.

Co-Founder Tension

On the Zoom call, co-founder emotions threw up red flags.

The first red flag 🟥