Why We Passed on This Startup (Episode 7)

There is no substitute for data points over time. In venture capital investing, the most important data points are about the founding team.

One slightly negative data point may be completely unintentional and not representative of the founder. Or, it may actually represent a pattern that the investor has not seen enough data points of to extrapolate yet.

Once upon a time, I met a startup team.

Let’s call it XYZ Company with Jackie, the Founder and CEO.

XYZ Company had a product that solved a problem in a market where the existing alternatives for customers were either, “do nothing,” which was fraught with risk and liability. Or, the competitive products were either too overbuilt and too expensive. It was pretty clear to see the white space in the market.

After a number of conversations, I felt good enough about the startup to invite them to pitch to Tundra Angels.

That’s when the CEO started to appear flaky.

An Odd Request

A couple days before the pitch, I got a text message from Jackie.

Jackie: “Hey Matthew, I am just looking at the agenda and didn’t realize that the pitch event goes all evening. Is there a way that I can give my pitch first? I have to get back for some family things.”

I had never received this request before. All of the other founders that have pitched Tundra Angels stay for the entire time to ensure they are able to network with the investors after the pitches conclude.

But, if Jackie had things to attend to, then I suppose that it was awkward for me to force anything. I hoped she knew what she was missing out on.

When the pitches concluded that night, her absence was evident. Several investors asked me about where Jackie was. It was awkward for me to say that she had things to get back to that evening.

The Unreachable Founder

For all of the founders that pitch Tundra Angels, I specifically tell them that I will give them a phone call that same night to tell them the interest of our group and whether or not we are moving them into due diligence.

After the pitch, we had enough interest to move XYZ Company into due diligence.

Then, another first happened for me.

When I called Jackie to tell her that we were moving them into due diligence, I couldn’t reach her. In fact, the call went right to voicemail. I tried a second and a third time, in case the call had an error. It continued to go to voicemail.

I wondered if Jackie was truly unavailable, or was she blowing me off? It didn’t feel right that Jackie clearly knew that I was going to be calling, and yet I couldn’t reach her.

Even if she were at a family engagement, wouldn’t there be a text message reply at a minimum? I would have expected that given the potential opportunity, she would step out for two minutes to chat with me. The silence seemed to send a negative message.

Another signal of flakiness.

In the morning, I got a text message from Jackie:

“Good morning. Sorry I missed your call last night. My phone goes into do not disturb after 9:30 p.m.” And then followed up with some times on when she could talk that day.

The response came across sly. Was this just a convenient excuse to not take my call that night? But, we later talked and I shared that we were moving them into due diligence and scheduled the deep dive chat.

The Deep Dive Chat

If a startup has enough interest, the next step after the pitch meeting is the deep dive chat. This is where several the Tundra Angels investors get on a Zoom call and talk through the business and opportunity in more detail.

On the call, one of the Tundra Angels investors asked a very insightful question, “What are some of the objections that your target market has to not buy your product?”

Jackie replied that the product didn’t fit the need of users in a few specific ways.

Yet, the company had line of sight to a V2 of their product.

Along the same lines, company was still debating between two different pricing strategies. The two different pricing strategies were predicated on the product being in V2 mode.

Based on the type of company that is was, we made the decision to pass. I communicated the specific reasons to Jackie.

Essentially, we didn’t want invest capital towards a product re-design. It was still an unresolved risk whether or not the product re-design was the “answer” the market needed. Additionally, the product re-design also connected to another risk on how the very different pricing strategies would be received by the market. Thus, one risk was tied to another risk. So, we decided to hold on investing in this round, with an eye towards the next funding round after those risks have been resolved.

The CEO’s Reach Out Months Later