Appearances vs Reality in Start-up Founders
One of the most active themes in history, literature and philosophy is the contrast between appearances and reality: what is being said vs what is being intended, what is being portrayed vs true feelings. According to Plato’s dialogues in the Republic, when trying to define justice: “The greatest kind of injustice is for someone to seem just, when in actuality he is unjust.” I would agree that this is certainly true in the start-up world: as a founder, portraying to be someone you are not is unfair to your team and your investors.
In the business of venture capital, we invest in people, we invest in teams. Our decisions are based more on the founders we invest in than the businesses they are running. So, it is extremely important that we analyze these teams correctly, that we make sure that they have the traits we are looking for, such as passion, purpose, experience and fit. In DILA, we look for diverse teams that share our principles, such as transparency, commitment, discipline, proactivity and responsibility.
We are usually meeting founders for the first time when listening to their first pitches. So, it is easy for us to fall into the first impression bias, we need to be careful about both the positive and the negative first impressions. How do we know if the appearance the founders are portraying are real? How do we know their appearance are their true identity?
Positive first impressions lead to social unity; negative first impressions lead to biases and social prejudice. According to psychologists, first impressions are made during the first seven seconds of meeting a person, but those first impressions last for several interactions until they are reverted. So, first impressions matter, for good and bad. As founders you must make sure you make the best first impression possible: you never get a second chance to make a first impression. As investors, we must be careful not to be taken away by these first impressions, for good and for bad. False impressions can, for example, lead us as researchers to dismiss dis-confirming information.
When analyzing a team to invest in, what we are analyzing is: are these people honest? Are they people we want to work with? We need to make sure that we don’t let our judgement cloud reality, we need to make sure that we are as objective as possible when analyzing the teams.
In order to eliminate this subjectivity, we must diligence the founders as much as possible, we must collect a lot of data: past experiences, past and current professional relationships, leadership style, capacity of communication, and so on. We cannot depend on social media, because (in my humble opinion) this is where we see the greatest conflict between appearance and reality in today’s world. Most people use social media to post pictures of themselves, their families, their businesses in the best moments. Posting the perfect picture (photo-shopped, filtered and pre-approved) of that perfect moment, when in reality things are not what your social media portray. People use social media today looking for social validation through comments and likes made by others, seeking admiration and praise. So, we cannot rely on social media in our diligence. We must pursue more traditional forms of analysis:
- Spend a lot of time with the founders
- Have deep conversations to understand their personal motivations and their definition of success
- Call their references and blind references
- Reach out to their earlier investors to understand what they think of them
- Talk to customers
- Find people we know in common and discuss their experiences with the founders
To sum it up, humans have always had a tendency to portray something they are not, there is always a moral battle between appearance and reality. As a venture capital investor, I must be aware of this, be aware of my biases and always be very diligent and disciplined in my analysis.