Once upon a time, I met a startup team.

Let’s call it ABC Company with Carl, the Founder and CEO. Without going into specific detail, Carl’s company operated in a regulated industry.

When I encountered Carl, his company had about $25,000 MRR and had raised over $1.5 million dollars from investors. I got connected to Carl as he was raising several hundred thousand for ABC Company.

The Founder’s Previous Exit

When I spoke to Carl for the first time, he had come off of a very successful startup exit a year or two earlier. The company he sold was in finance, a regulated industry.

As an investor, it’s always interesting to me to observe and dialogue with founders who had previous startup success.

I’ve encountered some founders with previous startup success that approach their current startup with humility and a Day One mentality. Then there are founders where in the way they carry themselves, they come off a bit like they have the Midas’ Touch for startups.

Now, not to discredit any startup founder, but I firmly believe that a large part of startup success is a result of the market itself and the demand opportunity. The best founders excel as the best founders by picking up the signals of the opportunity and captain the startup ship to navigate it into being a catch-all or catch-most for the market demand.

I’ve seen with many founders, and this is speaking of even people in general, that we tend to overestimate our contribution to the success. Or better put, sometimes previously successful founders put themselves as the “why” behind the opportunity being successful in the first place.

So as I spoke with Carl, I tried to discern how he carried himself in this regard. As he spoke, the language that he used, and the way he spoke about his previous startup success gave me the impression that in this current venture, he seemed to be highly confident in his acumen and skills as a founder, rather than a humble servant of the market who was fascinated with solving a market problem.

The Founder’s “Theory” About the Future

Here is one reason why I concluded this. As Carl was talking about his company, I could tell that he was clearly someone that lived in the future.

But as he spoke about the company, I picked up this interesting statement about his company. When he was describing the opportunity, he said, “I have a theory.”

“That theory,” he went on to say, is that certain sets of consumer products that we own were going to move from being owned to being not owned, but rather shared, in this particular industry.

But what I found interesting about Carl’s comments was his choice of words - a “theory” about the future. I observed what he didn’t say.

He didn’t say, “I’ve seen a problem in X market,” or, “I’ve spoken to ten customers in Y industry who have all said that they struggle doing this one thing, and I’m trying to solve it.”

No, this was more philosophical than that. And yet, he had previous startup success and his previous investors were thrilled with that company’s outcome.

To make it more interesting, Carl’s current company, ABC Company, that he was building, was in a completely different industry than that of his previous startup success.

Some founders build on the previous startup or corporate success and do an adjacent startup in the same industry. This is the case of our portfolio founders, Aaron Gregory and Danielle Hill, of Upwardli, whose previous executive experience at Remitly spotlighted the invisible credit problem they are now solving at Upwardli.

In Carl’s case, he founded a company in a completely different industry. Each one has advantageous and disadvantages.

But for me, Carl’s word choice of “I have a theory” rather than “I’ve seen a problem” nagged on me. Honestly, I didn’t know how to reconcile it for a while. I needed more data points.

A Future that Didn’t Seem Plausible

Again, Carl’s theory was that certain sets of consumer products that we own were going to move from being owned to being shared, in this particular industry. Thus, at a high level, Carl’s grand vision of his company was to become the technology infrastructure that powers that sharing for consumers.

But as we were reviewing Carl’s theory and his startup opportunity, one thing struck me as odd. It was how Carl talked about the future.

I want to zoom out for a second. In real life, my conversation with Carl took place when I was still relatively early in my journey as an investor. At the time, I remember feeling that something seemed off with the way Carl talked about the future. But I could not put that feeling into words.

But right now, as I am reviewing the pitch deck, and as I write this, this unresolved tension has is not clear. I can now put into words, several years later, why when Carl talked about the future, it seemed off. Here it is:

A lot of times when founders tell me about the future that their company is bringing to the world, there are trends that reveal the startup’s “why now” moment. The founder reveals that they see these trends as undercurrents in the market that are coming together to foreshadow a plausible story about the future.

Here is what I now see as off.

✅ As Carl talked and shared with me his deck, Carl highlighted not trends but rather facts. ✅

He cited several facts such as,

• The annual cost of owning this particular product.

• A large percentage of people currently use this product in isolation, without benefitting others.

• Another point in time fact about the industry.

None of these had any movement to them. That is, none of these Driving Factors as he called it in his pitch were driving factors at all. They didn’t represent a wave that was in a crescendo motion. It was a snapshot in time fact.

But, then Carl made a leap in his logic - because these things above are true, then the future will look like X - the vision of the future that he believed.

Back to my thinking and analysis with Carl in those several weeks. As I was evaluating the opportunity, this leap in logic gave the opportunity a sense that something was missing. It was as if I was reading a book and had just finished chapter three, and then the author picks up the next chapter at a future time with characters that hadn’t been introduced yet, plot twists that seemed to come out of nowhere, locations that had never been explained in chapter 3. Analyzing Carl’s company and his story about the future was like this. It gave me the feeling like, “Wait did I miss the middle of this story and just get transported to the end of the book”?

As I considered the future that Carl was foreshadowing, something else struck me as odd.

As we discussed his product roadmap, Carl spoke about the future of this sharing as something that would happen in 12 months!

As I considered my family’s propensity to sharing and that of society’s propensity to for this sharing, it seemed that we were many years away, if ever, away from that reality. And, it certainly would not be a widespread future because it would be more viable in urban areas and less viable in rural ones.

✅ Yet, an investors’ job in evaluating startups is to suspend what they believe the future will be and instead to stop and to imagine. ✅

Stop and imagine the future that the startup founder is evangelizing. ✅ 

What is important is not imagining how it could not be true, but rather, how could it be true?”

To that end, I thought that perhaps Carl uniquely saw something that I and the rest of society didn’t. Because great startups are born of non-obvious insights. (See my article here on non-obvious insights.)

As I was marinating in that future for several days, I looked at other aspects of Carl’s vision. Another part of Carl’s vision of the future was that for the OEMs in this industry. Carl theorized that instead of OEMs selling their product to distributors who sell to consumers, OEMs should instead sell their product to a company that already did this sharing on behalf of consumers, or become the OEM became company that shares this product all together and stopped selling to consumers!

That was a radical shift. But importantly, it moved my view of Carl’s vision from potentially plausible to undoubtedly preposterous.

I could potentially envision some of consumer behavior shifting in the way Carl described. But I could not get behind an entire regulated industry and its business model being upended in a few short years, especially when there was expensive hardware involved.

Carl’s theory of his startup’s platform being the missing link was beginning to sound amiss.

The Customer that Would Soon Be Disintermediated

Now, the current version of the product didn’t relate to sharing at all. Rather, it was a platform to help a particular service provider in the industry with their business operations. So, Carl’s company was selling its solution B2B to several customers and had about $25,000 MRR.

When we talked about his product vision, I remember Carl saying that he wanted to move from a one-sided market place, essentially the B2B motion he was currently executing, to becoming the OpenTable of this industry.

OpenTable, for context, is a well known startup in the hospitality space. The company spent seven years selling a B2B model to restaurants for table seating and operational efficiency. Then, after seven years, they opened up their model to consumers, now going B2C, to be able to book a table at a restaurant that was a customer of OpenTable.

But… the key piece was that Carl had slated opening up the marketplace in Q2, and we were in Q1 of that same year! Wait, Carl was planning on opening up the marketplace in about three months?!

At the time, I literally wrote in a memo to myself, “What I have questions about is the opening up of the marketplace so soon. Carl compared his product to OpenTable, but OpenTable took 7 years building the supply side of the marketplace, restaurants, before opening up the marketplace to consumer demand.”

But it wasn’t the timeline that was egregiously aggressive. The other dynamic was that in opening up the B2B motion to a B2B2C marketplace with your first several customers seemed like a perfect way to screw them over.

Carl’s startup was now appearing with a disjointed and unrealistic vision of the future, a heightened sense of how close the future was, and an aggressive product roadmap and go-to-market strategy that alienated the company’s early customers.

So, after several weeks of due diligence, Tundra Angels ended up passing on Carl and his startup.

Closing Thoughts

In writing this, I’ve thought a lot about the future and the way that founders evangelize the futures that they are creating.

✅ For investors, an investors’ job in evaluating startups is to suspend what they believe the future will be and instead to stop and to imagine. ✅ 

The investor must ask themself - “What are the trends in the market that could point to this potential future, as being the future?”

Trends have movement. Facts are stagnant.

But for founders…

✅ Fundamentally, a theory is not the same thing as a problem. ✅

The future is absolutely based on a theory and a set theories, but there must be a problem-orientation to that theory. Carl had a theory, but his theory was completely devoid of solving market problems.

✅ Great founders absolutely pull the world toward a future of their design. But in that quest over the course of years, they get on that road by solving problems in the short-term.

A theory of the future must be based on a problem or set of problems, but not exist independent of a market problem. ✅

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