Improv

Improv – a cartoon illustrates what happens when founder pattern recognition becomes founder theatre.

At the earliest stage of venture investing, there may be no meaningful product, revenue or evidence of market demand, so the investment is largely a bet on the founder and team. That requires looking beyond the pitch deck to understand how founders think and make decisions under pressure.

Venture capital has always relied on pattern recognition, although its preferred patterns were once comparatively crude (e.g. the Stanford engineer, the repeat founder or the obsessive technical outsider). As the industry expanded and thousands of funds began competing for the same exceptional companies, firms developed increasingly elaborate ways of identifying extraordinary behaviour while also demonstrating to their own investors that they possessed a “unique and proprietary” sourcing advantage.

Outlander VC, for example, assesses founders through a 38-point framework covering vision, intelligence, character and execution, followed by interviews that can examine their entire lives. Leura Craig, a partner at the firm, said that the framework gives its investment team “a shared vocabulary around what excellence really means.”

Other firms have industrialised the search. EQT Ventures analysed more than 21,000 startups and 5,000 founder psychometric profiles to identify six traits it claims can predict founder success with 99% accuracy. SignalFire takes a data-led approach through Beacon AI, which draws from more than two million sources and roughly half a trillion data points, tracking 80 million companies and 600 million people to identify emerging founders and investment opportunities.

The danger is that the process becomes the product. Founders learn the frameworks and move between interviews performing resilience, obsession, humility and irrational optimism according to each fund’s preferred model. VCs may believe they are identifying extraordinary entrepreneurs when they are increasingly selecting people who are exceptionally good at being selected.