One thing it’s important to do is get conflicting opinions when you do diligence on early stage companies. Conflicting opinions help you sort out the company. It’s important to understand where the opinion comes from. If you talk to a customer that loves the service, you need to understand where they fit. Then you can try and find out if there are a lot of those kinds of customers. When you speak to a corporate person, it’s important to understand if they see it or not. Often, corporations are blind to underlying changes. Other times, corporate people are exactly who you want to talk to because they have such a good view on the market. It all depends.
If you run into a situation where everyone says “this is the greatest thing since sliced bread”-either it is or you are in an echo chamber.
It’s always easier to see success in the rear view mirror. “Of course I would have written a check for that” is a typical response instead of “why didn’t I see that?”. When I had the chance to invest in a good company and passed, I always look to my own analysis. When a company fails, I look to my own analysis. On failures, it’s usually some “true fact” I thought would happen that didn’t pan out.
It’s hard to build conflicting opinions because it takes work. It also forces you to confront your own biases. You might not like hearing a far different opinion because it conflicts with yours. In many cases, it means you were wrong-and people don’t like to be wrong.
When you speak with really great venture capitalists, their mindset is usually, “strong opinions loosely held”. It’s important to be open to a different idea-because when you have a contrarian idea that the herd doesn’t follow it has a higher potential to be a blow out company than one that goes with the herd.
One thing is for sure, if you lined up ten seed stage companies, it’s impossible to know which company is going to be a billion dollar company. That’s why venture capitalists need a lot of at bats, and they bet on teams that can execute.